January 19, 2024

CFPB Seeks to Close Overdraft Loophole

Cozen O'Connor

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Cozen O'Connor

The CFPB proposed a rule that would update regulatory exceptions for overdraft credit provided by very large financial institutions and limit overdraft fees to small amounts only recovering applicable fees and costs.
According to the CFPB, the rule aims to close a loophole that previously allowed banks to charge overdraft fees on checking accounts without the same consumer protections required for other credit costs. While the loophole was originally meant to ensure that consumers could access money if they inadvertently overdrew their account while waiting for a check to clear, it has since led to increasingly higher overdraft fees. The CFPB claims these fees often disproportionately affect financially insecure consumers.
Under the proposed rule, large financial institutions can still offer overdraft loans so long as they comply with long-standing lending laws and disclose any applicable interest rate. Banks can also charge a fee to cover their costs, but this fee must be reasonable, possibly as low as $3, or based on actual costs they can prove.
The CFPB seeks comments on the proposed rule by April 1, 2024.

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