Joint Comments to CFPB on the NPRM on Overdraft Lending

Dear Director Chopra,

The American Bankers Association (ABA) and 52 state bankers associations (collectively, the Associations) appreciate the opportunity to comment on the Consumer Financial Protection Bureau’s proposal to impose additional regulation on overdraft services (Proposal).

Although the Bureau professes intent to protect "courtesy" overdraft, the Proposal would do the opposite. It would effectively bring an end to overdraft services for millions of consumers who –following receipt of a consumer-tested disclosure – choose to use to the product to cover emergency expenses and other liquidity shortfalls, all to advance the Administration's political campaign against "junk fees." We call on the Bureau to withdraw the Proposal.

I. Summary of Comment

The Proposal and the accompanying press releases assert that the CFPB "is taking action to close regulatory loopholes that will bring long overdue transparency and competition for overdraft lending." But the market for overdraft services already is transparent and competitive. In recent years, depository institutions have evaluated the existing pro-consumer regulations governing overdraft and the markets they serve, listened to consumers’ preferences, and responded by introducing changes to their overdraft programs. The process has yielded a variety of overdraft programs that fairly and transparently respond to consumer needs, promote free choice, and encourage competition, as even Director Chopra has repeatedly acknowledged. These innovations include sending low-balance alerts, linking the customer's checking account to another account, imposing de minimis thresholds and caps on total fees that the bank may charge per day, and providing overdraft "grace periods" during which a customer can make a deposit and avoid a fee. Additionally, some banks no longer charge overdraft or NSF fees, and many banks offer overdraft-free accounts that meet the Bank On initiative’s National Account Standards. The Bureau’s own research confirms that, as a result of banks’ innovations, consumers are paying less in overdraft and NSF fees now than they did four years ago.

All of these pro-consumer innovations are put at risk by the Proposal. Yet the Bureau has identified no market failure requiring additional regulation of overdraft services. And its effort to close so-called regulatory "loopholes" relies on a complex and contorted reinterpretation of the Truth in Lending Act (TILA) that finds no support in the statutory language.

The Proposal first states that overdraft is "credit" and an overdraft fee is a "finance charge" despite Congress' determination 50 years ago to the contrary. Financial institutions would be permitted to offer overdraft under the existing, pro-consumer regulatory framework established by the Federal Reserve in 2009 only if their overdraft fee is below a "breakeven" fee or a "benchmark" fee set by the Bureau. Charging a fee that exceeds the breakeven or benchmark fee would subject overdraft services to the requirements of TILA and Regulation Z.

Download the joint comment letter to read the full text.