CFPB Overdraft Proposal Would Harm Consumers

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Today, the Consumer Financial Protection Bureau – as part of the Biden administration’s whole-of-government crusade against “junk fees” – unveiled a proposed rule that limits overdraft fees on bank and credit union customers who overdraw their accounts. CEI Senior Fellow & Director of Finance Policy John Berlau explains why the CFPB rule would harm consumers.

“Once again, in their crusade against ‘junk fees,’ the Biden administration and CFPB are paternalistically limiting consumers’ choices in the marketplace and raising costs on their accounts at credit unions and banks. The CFPB proposed rule would put price controls and other curbs on what banks can charge for overdraft fees. This is despite the fact that since 2010, federal rules require banks and credit union to have consumers ‘opt in’ to being charged overdraft fees in exchange for financial institution approval of a transaction exceeding the customer’s account balance. Many consumers choose this option for the convenience of not having a transaction declined, and now banks and credit unions might stop offering this service because of this rule’s slashing of revenues. All consumers will likely face higher overall fees and fewer benefits – which may include higher thresholds to avoid low-balance fees and lower interest payments on their accounts – due to the sweeping costs this rule will likely impose.

“As I wrote to the CFPB in its initial study:

Historically, overdraft protection was a courtesy that banks reserved only for its most elite customers, typically high-income professionals and others who had personal connections to bank managers. Ordinary consumers, by contrast, were typically forced to deal with the inconvenience, embarrassment, and in some instances threats of criminal prosecution … and declined payments. Over time, however, financial institutions developed automated overdraft protection programs that have reduced the risk and cost of providing overdraft services and eliminated the traditional subjectivity and selectivity of discretionary overdraft protection programs, thereby expanding eligibility to virtually all bank customers regardless of income or status.

“By restricting an option that many consumers choose, the CFPB is pursuing a paternalistic junk policy that harms the very consumers it is claiming to assist.”


Comments to the Consumer Financial Protection Bureau on its Request for Information on ‘Junk Fees’ by John Berlau

Testimony on “The End of Overdraft Fees” by CEI Board Member Todd Zywicki