Maryland Legal Alert for Financial Services
CFPB Proposes to Classify Overdraft Fees as Credit
On January 17, 2024, the Consumer Financial Protection Bureau (CFPB) proposed a rule to classify overdraft fees as extensions of credit, and thereby subjecting such fees to coverage under the Truth in the Lending Act (TILA) and its implementing regulation (Reg. Z). The proposal aims to regulate (and significantly lower) the overdraft fees charged by financial institutions with more than $10 billion in assets as part of the CFPB's campaign to protect consumers from what the CFPB perceives as "junk fees" in the financial marketplace. Under current law, overdraft fees are not subject to TILA coverage. The proposed rule would characterize overdraft fees for covered financial institutions as an extension of credit under the TILA (unless overdraft fees were provided “at or below costs and losses as a true courtesy to consumers” -- in the $3 to $14 range). The rule, if adopted would also require typical Reg. Z cost of credit disclosures. The comment period for this proposed rule is open until April 1, 2024. If the proposed rule is adopted, it would take effect on October 1, 2025.
Practice Pointer: Financial institutions should consider the impact of the proposed rule on existing business practices and take advantage of the comment period to voice any concerns with the proposal.