The Consumer Financial Protection Bureau (CFPB) proposed a rule Wednesday that would require large banks to bring down overdraft charges and remove the exemption for overdraft loans.
“In an effort to score political points, the CFPB is seeking to eliminate a valuable service and push consumers who need overdraft protection into the hands of less-regulated, more-costly alternatives,” Rob Nichols, president and CEO of the American Bankers Association (ABA), said in statement.
“The proposal also fails to fully acknowledge and appreciate the significant voluntary changes many banks have already made to their overdraft programs, including the growing availability of accounts that do not charge overdraft fees,” he added.
“The proposal would upset this competitive market, restricting access to overdraft with a government-imposed price cap,” Nichols continued.
The Consumer Bankers Association (CBA) also suggested that the overdraft proposal overlooks voluntary changes banks have made in recent years, which the American retail bank group says were expected to bring down overdraft fees by 68 percent between 2008 and 2023.
“The Bureau is not only late to the party with this misguided proposal, but this one-size-fits-all approach from Washington threatens to undo years of progress while also freezing innovation and competition,” CBA President and CEO Lindsey Johnson said in a statement.
“If enacted, this proposal could deprive millions of Americans of a deeply valued emergency safety net while simultaneously pushing more consumers out of the banking system,” she added.
But consumer advocacy groups accuse banks of profiting off financially insecure customers burdened by overdraft fees.
“Too many large banks use manipulative practices to push extremely high-cost overdraft fees that disproportionately impact their most vulnerable customers,” said Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center, who called the proposed rule “critical.”
According to the CFPB, although most debit card overdrafts are for less than $26 and repaid within three days, large banks charge around $35 for an overdraft loan. This translates to an annual percentage rate (APR) of over 16,000 percent, the bureau said.
“For too long, some banks have charged exorbitant overdraft fees—sometimes $30 or more—that often hit the most vulnerable Americans the hardest, all while banks pad their bottom lines,” President Biden said in a statement. “Banks call it a service—I call it exploitation.”
The Hill’s Julia Shapero has more here.
