CFPB’s Proposed Overdraft Rule: Key Takeaways for Credit Unions

As the Consumer Financial Protection Bureau released its proposed overdraft rule outlining changes to how overdraft fees would be calculated and charged by financial institutions exceeding $10 billion in assets, the California and Nevada Credit Union Leagues alerted its members of some key facts.

You can view the CFPB’s long-awaited proposed overdraft rule here (financial institutions with assets of more than $10 billion are referred to as “very large financial institutions”). You can also view the proposed rule’s language here.

Banks and credit unions with assets below $10 billion would be exempt from the proposal. While the Leagues are still analyzing the proposed rule’s implications and will keep credit unions updated on its comment letter to the CFPB going forward, here are key takeaways:

• Options for “Very Large Financial Institutions” — The proposal offers two options for covered financial institutions to operate within the following exceptions: 1) A “breakeven standard,” where institutions may calculate their own costs, considering the losses incurred when writing off overdrawn account balances and direct costs related to courtesy overdraft; 2) A “benchmark fee,” where financial institutions may charge such a fee (the bureau has put forth specific amounts of $3, $6, $7, or $14). The CFPB is actively seeking comments to determine the appropriate amount for this fee.
• Continuation of Courtesy Overdraft Loans — Courtesy overdraft loans (those remaining exempt from Truth In Lending Act provisions) will continue to be subject to the opt-in requirements for one-time debit card and ATM transactions in accordance with Regulation E (12 CFR 1005.17(b)).
• Timeline — Comments on the proposal are open until April 1, 2024, and a final overdraft rule is expected to take effect on October 1, 2025 in compliance with Truth In Lending Act requirements. Additionally, President Joe Biden released a statement alongside the bureau’s proposal. Further details on the Leagues’ perspective regarding this proposal will be provided soon.
• Background — The criticisms directed at overdraft protection programs, whether originating from regulators or policymakers, do not accurately portray the increasing variety of innovative overdraft products and services that credit unions offer. These products aim to provide members with more choices and flexibility, addressing their specific needs within a highly competitive and well-regulated banking system. The Leagues are deeply disappointed with the proposed rule, fearing unintended consequences for consumers. Limiting fees could force credit unions to navigate increased risks or potentially eliminate services, impacting consumers who may turn to payday lenders for essential purchases. In addition, credit unions may also have to make other considerations, such as increasing loan rates or lowering deposit rates, or perhaps charging in other areas.

As a member-owned entity, the Leagues know that credit unions across California and Nevada emphasize their commitment to minimizing fees and supporting members of modest means, prioritizing the movement’s “people helping people” philosophy. The Leagues have launched a Credit Union Overdraft Resources site for members to access, which includes talking points, facts, research, a downloadable opinion-editorial template, and a regulatory timeline.

“We will routinely update this site and notify you as the news media spotlights overdraft protection services, as well as federal and state regulators and legislators,” said Diana Dykstra, president and CEO of the Leagues. “Please take advantage of these resources to support your media relations efforts and internal conversations with staff. And above all, thank you for your patience as we continue advocating for your credit union on this important issue.”