press release
Myths vs. Facts: Fact-Checking the CFPB’s Overdraft Rule
Weston Loyd
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) recently released a final rule on overdraft services that exceeds its regulatory authority and fails to appropriately consider how it could harm consumers. The CFPB's announcement contained misleading statements and factual inaccuracies about overdraft services. As such, the Consumer Bankers Association (CBA) is setting the record straight about what is myth versus fact.
| Myth | Fact |
| Overdraft fees are transparently disclosed and charged in return for a valuable service that consumers choose to use. By law, consumers can only be charged overdraft fees for purchases with their debit cards at the point of sale or ATMs if they affirmatively opt-into the service. After opting in, consumers still have the opportunity to opt-out at any time by contacting their bank if they change their minds. Surveys show consumers value overdraft services to cover essentials when they don't have better options. This is especially true for consumers without access to credit. Without overdraft services, in many cases overdrafters would be forced toward worse alternatives such as pawnshops or payday loans. Less than 10 percent of frequent overdrafters reported that they would be willing to forgo the transaction instead of overdrafting. | |
| The law already mandates that banks transparently disclose fees to consumers. Most banks use a standard form that’s provided by the government to disclose these fees. Banks also disclose how consumers can revoke their opt-in for overdraft services. Had the CFPB thought this was really about disclosures, it could have revised existing overdraft opt-in disclosure requirements. The government’s own data demonstrates how well disclosed overdraft fees are. A Federal Reserve survey found 84 percent of consumers who overdrew their accounts knew the fee in advance. | |
| The CFPB has exceeded its regulatory authority with this rule, misreading the Truth in Lending Act (TILA) and reversing 50 years of legal precedent without sufficient justification. TILA is not a tool for regulating overdrafts, which are deposit services that offer liquidity to consumers that often don’t qualify for traditional forms of credit. TILA is also not a tool for pricing financial products and services. This is not an isolated incident—courts have already rejected efforts by the CFPB to use the same law to create new requirements for other financial products. | |
| Many consumers choose to opt-in to overdraft services because paying a small fee is often a more practical and affordable solution than worse alternatives like payday loans or pawnshops. Unfortunately, the CFPB’s analysis for their rulemaking excluded Americans without credit histories and dismissed overdraft as “of little or no benefit.” This is a troubling disconnect from the everyday financial challenges faced by those who rely on these services. The claim that overdraft services provide little to no benefit to consumers ignores the reality faced by millions of Americans. Overdraft services are a critical financial lifeline, particularly for the one in five Americans who lack access to credit. Indeed, 67 percent of frequent overdrafters say they have been denied a credit card, suggesting they have had, and may continue to have, difficulty obtaining credit to cover short-term gaps in funds. Surveys show that the two most common expenses where overdraft was used were food and utilities. Consumers who do not find overdraft services beneficial are empowered to revoke their opt-in. | |
| This CFPB rule will only serve to diminish consumer choice. In practice, this rule will result in less access to overdraft services for the one in five Americans who lack access to credit. Over 90 percent of banks surveyed by CBA indicated that the CFPB's efforts to cap overdraft fees would materially reduce the amount of overdraft-related liquidity they are able to offer consumers. These Americans deserve the choice to use overdraft services to cover expenses in a pinch. America’s banks know that their customers want flexibility and choice. That’s why banks have worked to give consumers the information and products they need to make the best decisions for their financial situation. Through competition and innovation, banks have already reduced the amount of overdraft fees consumers pay by 50 percent since the pandemic. From introducing real-time payment alerts, low balance alerts, a cushion before a fee is charged, and Next Day Grace to eliminating extended or sustained overdraft fees, America's banks are focused on offering a choice of services that customers want. | |
| Contrary to assertions that providers take advantage of a “loophole” to offer overdraft services, federal regulators have consistently and repeatedly regulated overdraft as a deposit service for over 50 years. In addition, the Federal Reserve adopted provisions in two regulations specific to overdraft – Regulations E and DD – that create specific disclosure and opt-in requirements. The CFPB later adopted these regulations as its own. These are not the hallmarks of a loophole. |
