ABA, Financial Trades and Banks File Lawsuit Against CFPB's Overdraft Final Rule

The American Bankers Association today announced it is jointly pursuing legal action alongside the Consumer Bankers Association (CBA), America’s Credit Unions, Mississippi Bankers Association, and banks directly affected by the Consumer Financial Protection Bureau's (CFPB) final rule on overdraft services. With its new regulation, the CFPB exceeds its regulatory authority. More importantly, 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 lawsuit:

“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.”

CBA President and CEO Lindsey Johnson issued the following statement on the lawsuit:

"The CFPB’s rule on overdraft services harms Americans who need it most – including the 26 million Americans who don't have access to credit and thus stand to lose the most if overdraft services are restricted.

"Overdraft services are an essential lifeline for consumers when they experience unexpected expenses. Research shows that overdraft services provide much-needed liquidity during a short-term budget shortfall so consumers can put food on the table, keep the lights on, and make other important payments on time. Without overdraft services, consumers on the margins are more likely to turn toward worse, less-regulated non-banking services to fill the gap.

"Data show that consumers value overdraft services, and in recent years banks have innovated to make these services more consumer-friendly—providing real-time payment updates, grace periods, payment control, low-balance alerts, and no-fee overdraft accounts.

"While it is unfortunate, CBA had no choice but to pursue legal action to counter the CFPB's blatant statutory overreach with its misguided rule to ensure consumers continue to have access to liquidity through overdraft services.” 

America’s Credit Unions President and CEO Jim Nussle issued the following statement on the lawsuit:

“The CFPB issuing its final rule on overdraft nearly a month before the Trump Administration is set to begin is risky behavior for a regulator and for the consumers they claim to protect. Not only does it exceed the bureau's authority, but it threatens to eliminate financial protections for consumers. Everyone should have access to services that allow them to make ends meet without having to choose between buying groceries or paying a utility bill. These financial hardships have serious consequences on families, and overdraft programs provide an affordable lifeline in these circumstances. America’s Credit Unions' mission is to ensure consumers can partner with credit unions for their financial health and to achieve their best lives. The association is going to continue to fight through legal action to reverse this grave mistake from Director Chopra.”

Mississippi Bankers Association President and CEO Gordon Fellows issued the following statement on the lawsuit:

“Overdraft protections meet the clear and definite market-based need for a safe, responsible, and easily understandable source of consumer liquidity. Overdraft services provide consumers with essential liquidity that can be the difference between putting food on the table or putting it back on the grocery store shelf. The CFPB’s new rule is a clear overreach of the bureau’s authority, and if allowed to stand it will result in Mississippians losing access to the liquidity that overdraft services provide. We worry that the loss of these services will push many economically vulnerable Mississippians into less safe and more costly non-bank products. 

“It’s regrettable that the CFPB has left us no choice but to pursue legal action to challenge this rule. Suing the CFPB to challenge this rule is undesirable but necessary.”

The complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division. CBA and its co-plaintiffs also will seek a preliminary injunction barring the CFPB from implementing the new rule until the court makes a final decision on the merits of the case.

To view the full filing, click HERE.

Why It Matters

The CFPB's rule will hit Americans in need the hardest by reducing the availability of overdraft services. Consumers experiencing a short-term fund gap and those without credit access rely on overdraft services to put food on the table, keep their lights on, and make other important payments on time. Without overdraft services, they can be forced to turn to worse non-bank alternatives, such as fees for late payments on essentials like rent and utilities; pawning or selling something; borrowing money from friends and family; or taking out a payday loan. 

The CFPB is exceeding its regulatory authority with this final rule. The CFPB does not have the statutory authority to cap prices on services by financial institutions, nor do overdraft services meet the statutory definition of credit. The CFPB's final rule also reverses 50 years of legal precedent without sufficient justification.

What Happened

On January 4, 2024, the CFPB announced its notice of proposed rulemaking (NPRM) on overdraft lending for very large financial institutions, outlining a rule to reclassify overdraft services as credit products under the Truth in Lending Act (TILA).

On April 1, 2024, CBA submitted its comment letter to the CFPB outlining its concerns with the proposal.

On December 12, 2024, the CFPB released its final rule on overdraft services. The final rule exceeds the CFPB's regulatory authority, fails to appropriately consider how the rule could harm consumers, and relies on incomplete data. 

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About the American Bankers Association

The American Bankers Association is the voice of the nation’s $24.2 trillion banking industry, which is composed of small, regional and large banks that together employ approximately 2.1 million people, safeguard $19.1 trillion in deposits and extend $12.6 trillion in loans.

Contact:

Mike Townsend

[email protected]

About the Consumer Bankers Association

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on X @consumerbankers. 

Contact:

Weston Loyd

[email protected]

About America’s Credit Unions

America’s Credit Unions is the unified voice for not-for-profit credit unions and their more than 140 million members nationwide. America’s Credit Unions provides strong advocacy, resources and services to protect, empower, and advance credit unions and the people and communities they serve. For more information about America’s Credit Unions, visit AmericasCreditUnions.org.

Contact:

Molly Safreed

[email protected]

About the Mississippi Bankers Association

The Mississippi Bankers Association, established in 1889, is a private membership organization which brings together and represents banks and savings institutions in the State of Mississippi. The MBA provides education through seminars and conferences, information through various avenues such as The Mississippi Banker magazine, and representation in legislative and regulatory matters.

Contact:

Amanda Markow

[email protected]