Statement: U.S. PIRG applauds CFPB’s proposed Overdraft Lending Rule

CFPB to curb overly punitive overdraft fees, treat them as consumer credit 

WASHINGTON — The Consumer Financial Protection Bureau (CFPB) published its proposed Overdraft Lending Rule on Wednesday. The proposed rule would subject overdraft fees to Truth in Lending Act disclosures and protections required for consumer credit, if they exceed the cost to banks.

In December 2021, the CFPB published research on predatory overdraft fees, showing that the financial sector overrelies on these fees and non-sufficient funds (NSF) revenue, which reached an estimated $15.47 billion in 2019. Ironically, one of America’s 15 largest banks, Capital One, announced it would eliminate all overdraft and NSF fees on the same day the CFPB released that report. 

This is the latest in a series of CFPB actions to curb overdraft fees. The watchdog agency also has ordered Wells Fargo to pay a record $3.7 billion for wrongful actions; issued guidance to banks on how to avoid imposing the worst illegal fees; and uncovered numerous illegal junk fees, including surprise overdraft fees, through its supervisory activities. 

Numerous banks have changed their overdraft practices under the CFPB’s closer watch. Despite those changes and significant reductions in overdraft/NSF revenue, consumers still paid about $9 billion in overdraft fees in 2022 and more than $2.3 billion to just 10 large banks in 2023.

In response to the release of the proposed overdraft rule, PIRG’s Consumer Campaign Director Mike Litt released the following statement:

“Financial institutions rake in billions of dollars a year from overly punitive overdraft fees, which mostly penalize customers with the least money to lose. Many banks commonly charge about $35 per overdraft, sometimes three to five times in a single day. 

“It’s long overdue to rein in overdraft fees. If the CFPB’s proposed rule takes effect, overdraft fees will be more reasonable and in line with the actual costs to banks.

“In practice, overdraft fees have functioned as high-cost credit, so it only makes sense to regulate excessive fees as such. We urge the CFPB to finalize these much needed consumer credit protections as soon as possible.”