CFPB Proposes Rule on Overdraft Services Offered by Large Banks and Credit Unions

On January 17, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued a long awaited rule that, if adopted, will significantly impact how overdraft services are offered by (large) banks and credit unions today.

The proposal requires large financial institutions – banks and credit unions with more than $10 billion in assets – to treat certain overdraft loans more or less like credit cards. Covered overdraft services would be subject to Regulation Z’s requirements for open end credit, including “ability to repay” analysis and prohibitions on offsetting. The rule would also subject overdraft credit services to Regulation E’s compulsory use prohibition, meaning a covered institution could not condition availability of a covered overdraft service on the consumer’s consent to automatic debits for repayment from a checking account.

Notably, the proposal would only apply to overdraft credit offered by covered institutions at a cost to the consumer above the institution’s “breakeven” amount, which may either be determined by the institution pursuant to a methodology provided by the CFPB or via a benchmark adopted by the CFPB (the proposal sets the benchmark at either $3, $6, $7, or $14).

While the proposal is currently limited to “very large financial institutions,” the CFPB is careful to note that it will monitor market responses to the proposed rule and, potentially, expand these requirements to smaller financial institutions in the future.

Comments on the CFPB’s proposal are due on or by April 1, 2024.

The text of the proposed rule is available HERE.