Brookings article on overdrafts could foreshadow increased CFPB attention to overdraft practices | Ballard Spahr srl
An article recently published by the Brookings Institution in an editorial titled “A few small banks have become overdraft giants” serves as a warning that bank overdraft practices are likely to receive increased attention from the “new CFPB”. “.
Written by Aaron Klein, Brookings Senior Fellow, the article reports that overdraft income represented more than half of the net income of six small banks in 2020 and criticizes regulators for “tolerance.[ing] banks that depend mostly or entirely on overdraft fees for profitability. The author calls banks that rely heavily on overdrafts for their profits as “a combination of payday lenders and check tellers.” He calls on banking regulators to “crack down on these institutions that are neither safe nor sound” and “to determine if the overdraft product is really a loan, not a fee.” Mr. Klein also calls on the CFPB “to get involved”. He claims that “to call [overdrafts] fees may exempt [them] of certain regulations, but that does not change [their] nature [as a loan]. “
Under the leadership of former Director Cordray, the CFPB has taken several preliminary steps towards establishing overdraft rules. In its spring 2015 regulatory program, it said it “is examining whether the rules governing overdrafts and related services are justified and, if so, what types of rules would be appropriate”. He also issued a June 2013 White Paper, a July 2014 Report, And one August 2017 Report on current account overdraft services. The August 2017 report was accompanied by four prototype one-page form templates that banks can use to disclose overdraft fees and obtain consumer consent to the bank’s overdraft service for ATM and ATM transactions. single-use debit card. In November 2017, the CFPB published a notice in the Federal Register announcing that it plans to seek OMB approval to conduct online testing of ATM / overdraft disclosures.
The CFPB has not taken any action regarding the regulation of overdrafts under the leadership of former acting director Mulvaney or former director Kraninger. In December 2020, the Chair of the House Financial Services Committee, Maxine Waters sent a letter then President-elect Joe Biden recommending various actions the Biden administration should take in the area of financial services. Protection against overdrafts was among the areas in which she recommended that the CFPB publish new rules with stronger guarantees for consumers.
Whether or not the “new CFPB” rekindles its interest in overdraft regulation, banks must be prepared for overdraft practices to receive increased supervisory attention from the “new CFPB”. and application.