The Consumer Bankers Association (CBA), American Bankers Association (ABA), America’s Credit Unions, Mississippi Bankers Association, and other individual banks have joined in a lawsuit challenging the final rules issued by the Consumer Financial Protection Bureau impacting overdraft regulations.
Yesterday, the CFPB issued rules that manage how banks address overdrafts.
The new rule allows large banks several options for overdrafts:
- They can choose to charge $5;
- To offer overdraft as a courtesy by charging a fee that covers no more than costs or losses;
- Or continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate.
The banks believe the CFPB has overstepped its statutory authority while arguing allowing markets to operate and drive new solutions is a better path to providing overdraft services for its customers.
The groups also state that the CFPB “fails to appropriately consider how its actions will harm the consumers who most benefit from the access to the liquidity enabled by overdraft services.”
ABA President and CEO Rob Nichols issued the following statement on the CFPB:
“It’s unfortunate that we have to turn to the courts once again to rein in a CFPB director unwilling to recognize the clear legal boundaries set by Congress. The CFPB’s final overdraft rule exceeds the Bureau’s statutory authority, ignores thoughtful industry and stakeholder feedback, and will harm the very consumers the CFPB claims to protect. Surveys consistently show that Americans understand and appreciate overdraft protection, and if this rule is allowed to move forward, many Americans will lose this service. Consumers don’t want that to happen, which is why we have joined this litigation. We look forward to the court’s review.”
America’s Credit Unions President and CEO Jim Nussle noted that the final rules emerged just weeks before the next Administration will take over. The incoming Trump presidency is expected to be less regulation-friendly.
Nussle said the rules exceed the bureau’s authority and threaten to eliminate these financial protections for consumers.
While many banks and Fintechs have changed the way they manage overdrafts, there are not consistent approaches as to how this type of credit is managed.
The complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division. The group will seek a pre-limiary injunction.
