CFPB Limits Bank Overdraft Fees
The CFPB adopted a final rule to limit overdraft charges at large banks and credit unions. The agency stated that the new rule "closes the large bank regulatory loophole that exempted overdraft fees as a finance charge." (See also accompanying Executive Summary.)
The amendments to Regulation Z ("Truth in Lending") apply to all consumer overdraft credit provided by "very large institutions," (an institution with total assets of more than $10 billion and any affiliate thereof) unless it was provided at or below the institution's costs and losses. The new rule defines overdraft credit as "consumer credit extended by a financial institution to pay a transaction from a checking or other transaction account ... when the consumer had insufficient ... funds."
Under the new rule, the CFPB updated two exceptions from the definition of finance charge:
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The first exception provides that overdraft charges are not considered a finance charge if the financial institution had not previously agreed in writing to pay items that overdraw an account, if the overdraft credit is provided at or below costs and losses. The exception allows financial institutions to determine if an overdraft charge was at or below costs and losses by either (i) calculating its own costs and losses using a standard set in the rule or (ii) relying on a benchmark fee of $5.
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The second exception provides that a charge imposed in connection with an overdraft credit feature would not be considered a finance charge if it did not exceed the charge for a similar transaction account without a credit feature. The final rule clarified what charges were considered comparable.
The final rule also applies additional requirements to covered overdraft credit offered by very large financial institutions by: (i) prohibiting compulsory use of preauthorized transfers; (ii) requiring covered overdraft credit to be structured as a separate credit account; and (iii) applying CARD Act provisions to hybrid debit-credit cards.
The final rule will take effect on October 1, 2025.