For the past ten years, financial institutions have been working under the framework of the Consumer Financial Protection Bureau’s Overdraft Rule. This rule limits the ability of financial institutions to charge overdraft fees on ATM and one-time debit card transactions that overdraw consumers’ accounts. In recent months, the CFPB has sought comment on whether to modify the Overdraft Rule. In a response this month, multiple state attorneys general objected to modifications that they believe could adversely impact consumers, but voiced favor for potential pro-consumer changes. 

Specifically, under the Overdraft Rule, financial institutions need to obtain their customers’ permission before charging an overdraft fee. If customers do not accept the coverage, the financial institutions decline transactions that would drop an account below zero. If customers decide to opt in, the bank will typically approve the purchase or withdrawal and charge a fee as a result. 

On May 13, the CFPB published a notice regarding its periodic review of regulations pursuant to Section 610 of the Regulatory Flexibility Act (“RFA”). In this notice, the CFPB requested public input on its first RFA review of the 2009 Overdraft Rule. The reason for a 610 review is to determine if a rule that has significant economic impact upon a substantial number of small business entities should be continued without change, be amended, or be rescinded. 

On July 1, twenty-four state attorneys general, the D.C. attorney general, and the Executive Director of the Hawaii Office of Consumer Protection asked the CFPB not to alter the rule as a result of the RFA review. New York Attorney General Letitia James is spearheading the effort to ensure the Overdraft Rule stays in place. In the July 1 letter, the attorneys general stated that they are unaware of “support for any claim that the Overdraft Rule has placed substantial economic burdens on small financial institutions that would justify modifications to the Rule.” They also indicated that they would support the expansion of the Overdraft Rule to apply to checks and automated clearinghouse (“ACH”) transactions. Further, they would be in favor of a cap on the overdraft fees that consumers actually pay to make them proportional to the amount paid by the bank to cover the transaction. 

Other industry trade groups, including the American Bankers Association, have requested the CFPB not to change the Overdraft Rule.  

Troutman Sanders will continue to monitor developments with the Overdraft Rule.

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Jared Bissell

Jared Bissell is an attorney in the firm’s Consumer Financial Services and Financial Services Litigation practices where he is dedicated to obtaining optimal results for clients in a variety of compliance issues as well as federal and state litigation matters.

Photo of David M. Gettings David M. Gettings

Dave Gettings is a partner who focuses on defending his clients in consumer class actions and complex commercial litigation nationwide.  He specializes in class actions and consumer litigation involving a variety of federal and state laws and regulations, including the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA) and associated FCC regulations, the Fair Debt Collection Practice Act (FDCPA), the Truth-in-Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), and many similar state consumer protection statutes.