ABA, 52 State Bankers Associations to CFPB: The Market for Overdraft Services is Already Transparent and Competitive

In a detailed comment letter filed today with the Consumer Financial Protection Bureau, the American Bankers Association joined all 52 state bankers associations in explaining why the market for overdraft services is already transparent and competitive, directly challenging the basic premise behind the Bureau’s misguided proposal to impose additional regulation on overdraft protection services. The letter spells out the many problems with the proposal and why it should be withdrawn. It reads in part:

"Although the Bureau professes intent to protect ‘courtesy’ overdraft, the Proposal would do the opposite. It would effectively bring an end to overdraft services for millions of consumers who – following receipt of a consumer-tested disclosure – choose to use to the product to cover emergency expenses and other liquidity shortfalls, all to advance the Administration’s political campaign against ‘junk fees.’ We call on the Bureau to withdraw the Proposal."

The letter details the significant changes in overdraft services already underway within the industry, including the wide array of choices available to consumers and the lengths to which banks provide tools and resources to help their customers avoid overdraft fees.

“The Proposal and the accompanying press releases assert that the CFPB ‘is taking action to close regulatory loopholes that will bring long overdue transparency and competition for overdraft lending.’ But the market for overdraft services already is transparent and competitive. In recent years, depository institutions have evaluated the existing pro-consumer regulations governing overdraft and the markets they serve, listened to consumers’ preferences, and responded by introducing changes to their overdraft programs. The process has yielded a variety of overdraft protection programs that fairly and transparently respond to consumer needs, promote free choice, and encourage competition, as even Director Chopra has repeatedly acknowledged. These innovations include sending low-balance alerts, linking the customer’s checking account to another account, imposing de minimis thresholds and caps on total fees that the bank may charge per day, and providing overdraft grace periods’ during which a customer can make a deposit and avoid a fee. Additionally, some banks no longer charge overdraft or NSF fees, and many banks offer overdraft-free accounts that meet the Bank On initiative’s National Account Standards. The Bureau’s own research confirms that, as a result of banks’ innovations, consumers are paying less in overdraft and NSF fees now than they did four years ago.”

The letter notes that the CFPB’s proposal disregards the law in its zeal to cap overdraft fees, “reinterpreting” overdraft as “credit” despite Congress’ determination that it is not, among other areas where the Bureau’s proposal exceeds its authority and raises other serious questions as to its constitutionality. The associations wrote that it will also put existing pro-consumer innovations at risk, and that many consumers use overdraft protection strategically and highly value it:

“Consumers will be harmed by the Bureau’s price cap. An analysis of transaction data from 11 banks found that the median size of items paid into overdraft is $370. Another analysis of data from 14 financial institutions found that the average size of items paid into overdraft was $198. These analyses demonstrate that many consumers use overdraft strategically to ensure that important expenses – such as rent, utilities, and medical bills – are paid when the consumer experiences a shortfall in funds. Not surprisingly, surveys consistently show that consumers appreciate and value their bank’s overdraft program and are glad that their bank covered their overdraft payment, rather than returned or declined the payment. A survey conducted in March 2024 by Morning Consult found that more than two-thirds of consumers (67%) find their bank’s overdraft protection valuable – as compared with only 16% who do not find it valuable – and 8 in 10 consumers (79%) who have paid an overdraft fee in the past year were glad their bank covered their overdraft payment, rather than returning or declining payment. While no one likes to pay fees, 64% of consumers think it is reasonable for banks to charge a fee for an overdraft, as opposed to only 23% who think it’s unreasonable. Prior surveys by Morning Consult found similar results and demonstrate the enduring reality that consumers value overdraft. Indeed, only a miniscule number of complaints submitted to the Bureau – 0.003% of the total – list ‘overdraft’ as the issue or sub-issue of the complaint.”

In addition, the letter highlights how the proposed rule will still impact smaller financial institutions the Bureau claims it wants to exempt:

"The Proposal purports to apply only to banks and credit unions with more than $10 billion in assets, but if it is finalized, all depository institutions (and their customers) will be impacted, as institutions will face market pressure to conform their practices to the Bureau’s rule. In addition, the Bureau’s line-drawing is inconsistent with TILA; nothing in the statute supports defining overdraft as ‘credit’ and the fee a ‘finance charge’ only when offered by an institution with assets greater than $10 billion. And to our knowledge, this is the first time a regulator has suggested that a consumer is not entitled to the same protections based on the asset size of the institution where the consumer chooses to bank.”

Read the full comment letter.