CFPB press release: “The Consumer Financial Protection Bureau (CFPB) today proposed a rule to rein in excessive overdraft fees charged by the nation’s biggest financial institutions. The proposal would close an outdated loophole that exempts overdraft lending services from longstanding provisions of the Truth in Lending Act and other consumer financial protection laws. For decades, very large financial institutions have been able to issue highly profitable overdraft loans, which have garnered them billions of dollars in revenue annually. Under the proposal, large banks would be free to extend overdraft loans if they complied with longstanding lending laws, including disclosing any applicable interest rate. Alternatively, banks could charge a fee to recoup their costs at an established benchmark – as low as $3, or at a cost they calculate, if they show their cost data.”
“‘Decades ago, overdraft loans got special treatment to make it easier for banks to cover paper checks that were often sent through the mail,’ said CFPB Director Rohit Chopra. ‘Today, we are proposing rules to close a longstanding loophole that allowed many large banks to transform overdraft into a massive junk fee harvesting machine.’ The proposed rule would apply to insured financial institutions with more than $10 billion in assets, which covers approximately the 175 largest depository institutions in the country. These institutions typically charge $35 for an overdraft, even though the majority of debit card overdrafts are for less than $26, and are repaid within three days.”
