News Release: 142 Organizations Support CFPB Rule to Curb Abusive Overdraft Fees

by team in Statements and Press Releases

FOR IMMEDIATE RELEASE:

April 1, 2024

CONTACT: National Consumer Law Center, Michelle Deakin (mdeakin@nclc.org); Americans for Financial Reform, William Pierre-Louis, Jr. (william@ourfinancialsecurity.org)

142 Organizations Support CFPB Rule to Curb Abusive Overdraft Fees
Proposed rule will promote fair and affordable overdraft coverage and prevent big banks from charging junk fees

WASHINGTON, D.C. – Today, 142 consumer, civil rights, military, legal services, and community groups submitted comments in strong support of the Consumer Financial Protection Bureau’s (CFPB) proposed rule governing the overdraft lending practices of the largest financial institutions. [The National Consumer Law Center also submitted a longer, more detailed set of comments, which will be available here.] By closing an outdated loophole designed in the check era, the proposed rule will promote more honest, fair, and affordable forms of overdraft coverage and prevent big banks from charging junk fees that push people out of the banking system.

“The effects of excessive fees are serious. Individuals who frequently experience overdrafts often resort to costly loans from payday lenders and loan sharks to pay their fees, trapping them in cycles of debt,” said Amanda N. Jackson, director of consumer campaigns at Americans for Financial Reform. “This proposal would not only help bridge financial gaps but impede the bank’s ability to use overdraft fees as a tool to exacerbate wealth disparities to the detriment of Black, Latino, and low-income bank customers.”

“Banks should not be allowed to harm families by hiding their costs in back-end junk fees,” said Carla Sanchez-Adams, senior attorney at the National Consumer Law Center. “We strongly support the proposed rule, which will provide consumers with needed financial relief and help to restore trust in big banks.”

Big banks typically charge $35 for each overdraft, a punitive amount far in excess of the minimal cost to the financial institution of covering an overdraft. Banks also engage in practices that cause overdraft fees to snowball, discouraging some people from keeping money in a bank and causing others to lose their bank accounts. 

“It’s one thing to charge a fee to recover a cost,” said Adam Rust, Director of Financial  Services for the Consumer Federation of America, “but quite another to gouge consumers for honest mistakes. Because of a loophole, too many banks have become accustomed to profiting from overdrafts. The CFPB’s proposal restores balance and should underscore how banks have been granted charters to make loans, facilitate payments, and hold deposits, and not to extract profits from the public through inflated junk fees.” 

The proposal would give consumers a range of more affordable options for overdraft protection and provide flexibility to banks. As long as banks charge a modest “benchmark” fee set by the CFPB or a breakeven fee that covers the banks’ costs, they could still offer overdraft services without complying with credit laws. For higher-priced overdraft credit, very large financial institutions would have to comply with the protections of the Truth in Lending Act and, for hybrid debit-credit cards, with the credit card protections. 

“The proposal promotes honest and affordable overdraft protection,” said Mike Litt, U.S. PIRG’s consumer campaign director. “If big banks want to offer overdraft credit through debit cards and charge more than their costs, they would have to comply with the same protections required of credit cards.”

“We urge the CFPB to set the benchmark fee at $3. Rather than deterring overdrafts, high fees give banks incentive to push people into overdrafting,” said Sanchez-Adams of NCLC. “Banks that price their accounts transparently, using a breakeven fee instead of imposing abusive overdraft fees, will have an easier time competing with banks that hide costs in back-end junk fees.”

The CFPB appropriately started with the biggest banks, but advocates urge the CFPB to issue a subsequent rulemaking to cover smaller institutions. While it may take more time for the CFPB to collect the data it needs to propose a similar rule for smaller financial institutions, the CFPB should collect data and monitor overdraft practices at smaller institutions and plan for future rulemaking.

“The CFPB’s proposed rule will stop the nation’s largest banks from exploiting families living paycheck to paycheck,” said Accountable.US’ Director of the Economic Security & Corporate Power Program Liz Zelnick. “Almost one in five consumers incur overdraft fees each year, and overdraft fees hit lower-income families and communities of color the hardest.”

The CFPB must also stop big tech companies that offer banking apps from evading overdraft fee rules and prevent “tips” from being used as a disguised overdraft fee.

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About Americans for Financial Reform:
Americans for Financial Reform is a nonpartisan and nonprofit coalition of more than 200 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups. Formed in the wake of the 2008 crisis, we are working to lay the foundation for a strong, stable, and ethical financial system – one that serves the economy and the nation as a whole.

Since 1969, the nonprofit National Consumer Law Center has worked for consumer justice and economic security for low-income and other disadvantaged people in the United States through its expertise in policy analysis and advocacy, publications, litigation, expert witness services, and training.