Overdraft Lending: Very Large Financial Institutions

CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Parts 1005 and 1026</CFR> <DEPDOC>[Docket No. CFPB-2024-0002]</DEPDOC> <RIN>RIN 3170-AA42</RIN> <SUBJECT>Overdraft Lending: Very Large Financial Institutions</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Proposed rule; request for public comment. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) proposes to amend Regulations E and Z to update regulatory exceptions for overdraft credit provided by very large financial institutions, thereby ensuring that extensions of overdraft credit adhere to consumer protections required of similarly situated products, unless the overdraft fee is a small amount that only recovers applicable costs and losses. The proposal would allow consumers to better comparison shop across credit products and provide substantive protections that apply to other consumer credit. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received on or before April 1, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> You may submit comments, identified by Docket No. CFPB-2024-0002 or RIN 3170-AA42, by any of the following methods: • <E T="03">Federal eRulemaking Portal: https://www.regulations.gov.</E> Follow the instructions for submitting comments. A brief summary of this document will be available at <E T="03">https://www.regulations.gov/docket/CFPB-2024-0002.</E> • <E T="03">Email: 2024-NPRM-OVERDRAFT@cfpb.gov.</E> Include Docket No. CFPB-2024-0002 or RIN 3170-AA42 in the subject line of the message. • <E T="03">Mail/Hand Delivery/Courier:</E> Comment Intake—2024 NPRM Overdraft, c/o Legal Division Docket Manager, Consumer Financial Protection Bureau, 1700 G Street NW, Washington, DC 20552. <E T="03">Instructions:</E> The CFPB encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to <E T="03">https://www.regulations.gov.</E> All submissions, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Submissions will not be edited to remove any identifying or contact information. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Anna Boadwee, Attorney-Advisor; Joseph Baressi, Pedro De Oliveira, Thomas Dowell, Brandy Hood, Kristin McPartland, or Mark Morelli, Senior Counsels, Office of Regulations, at 202-435-7700 or <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Summary of Proposed Rule</FP> <FP SOURCE="FP-2">II. Background</FP> <FP SOURCE="FP1-2">A. Overview of Overdraft Credit</FP> <FP SOURCE="FP1-2">B. Evolution and Growth of Non-Covered Overdraft</FP> <FP SOURCE="FP1-2">C. Non-Covered Overdraft Credit Today</FP> <FP SOURCE="FP1-2">D. Consumer Impact of Overdraft Fees</FP> <FP SOURCE="FP1-2">E. Growing Regulatory Concerns About Non-Covered Overdraft Credit</FP> <FP SOURCE="FP1-2">F. Need for CFPB Action</FP> <FP SOURCE="FP-2">III. Outreach and Related Research</FP> <FP SOURCE="FP-2">IV. Legal Authority</FP> <FP SOURCE="FP1-2">A. Truth in Lending Act</FP> <FP SOURCE="FP1-2">B. Electronic Fund Transfer Act</FP> <FP SOURCE="FP1-2">C. Consumer Financial Protection Act</FP> <FP SOURCE="FP-2">V. Discussion of the Proposed Rule</FP> <FP SOURCE="FP1-2">A. Who is covered? (§ 1026.62(b)(8))</FP> <FP SOURCE="FP1-2">B. What transactions and accounts are covered?</FP> <FP SOURCE="FP1-2">C. Changes to the Definition of “Finance Charge” (§ 1026.4(b)(2), (b)(12), and (c)(3); § 1026.62(d))</FP> <FP SOURCE="FP1-2">D. Changes to Covered Overdraft Credit Offered by Very Large Financial Institutions</FP> <FP SOURCE="FP-2">VI. Proposed Effective Date</FP> <FP SOURCE="FP-2">VII. Severability</FP> <FP SOURCE="FP-2">VIII. CFPA Section 1022(b) Analysis</FP> <FP SOURCE="FP1-2">A. Overview</FP> <FP SOURCE="FP1-2">B. Data Limitations and Quantification of Benefits, Costs, and Impacts</FP> <FP SOURCE="FP1-2">C. Baseline for Analysis</FP> <FP SOURCE="FP1-2">D. Potential Benefits and Costs to Consumers and Covered Persons of the Proposed Changes That Affect Charges for Non-Covered and Covered Overdraft Credit</FP> <FP SOURCE="FP1-2">E. Potential Benefits and Costs to Consumers and Covered Persons of Further Provisions of the Proposed Rule</FP> <FP SOURCE="FP1-2">F. Potential Specific Impacts of the Proposed Rule on Depository Institutions and Credit Unions With $10 Billion or Less in Total Assets, as Described in CFPA Section 1026</FP> <FP SOURCE="FP1-2">G. Potential Specific Impacts of the Proposed Rule on Consumer Access to Credit and on Consumers in Rural Areas</FP> <FP SOURCE="FP-2">IX. Regulatory Flexibility Act Analysis</FP> <FP SOURCE="FP-2">X. Paperwork Reduction Act</FP> </EXTRACT> <HD SOURCE="HD1">I. Summary of Proposed Rule</HD> <HD SOURCE="HD2">Overview</HD> This proposed rule would update non-statutory exceptions in Regulations Z and E that have allowed very large financial institutions to avoid statutory requirements when extending certain overdraft credit. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  When amending commentary, the Office of the Federal Register (OFR) requires reprinting of certain subsections being amended in their entirety rather than providing more targeted amendatory instructions. The sections of regulatory text and commentary included in this document show the language of those sections if the Bureau adopts its changes as proposed. In addition, the Bureau is releasing an unofficial, informal redline to assist industry and other stakeholders in reviewing the changes that it proposes to make to the regulatory text and commentary of Regulation E and Regulation Z. This redline may be found on the Bureau's website, <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_unofficial-redline_overdraft-credit-very-large-financial-institutions-proposed-rule_2024-01.pdf.</E> If any conflicts exist between the redline and the text of Regulation E or Regulation Z, its commentary, or this proposed rule, the documents published in the <E T="04">Federal Register</E> are the controlling documents. </FTNT> Consumer credit is subject to Regulation Z if the creditor imposes a finance charge, which generally includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. <SU>2</SU> <FTREF/> However, when the Board of Governors of the Federal Reserve System (Board) first adopted Regulation Z in 1969, <SU>3</SU> <FTREF/> it excepted from Regulation Z's definition of finance charge any charges for honoring checks that overdraw a checking account unless the payment of the check and imposition of the fee were previously agreed upon in writing. The Board subsequently made “minor editorial changes” to this exception, <E T="03">e.g.,</E> to reflect “items that are similar to checks, such as negotiable orders of withdrawal.”  <SU>4</SU> <FTREF/> This exception is unique to credit extended to pay account overdrafts. In adopting this exception, the Board did not rely on an interpretation of the statute; rather, the Board used its authority to create regulatory exceptions. Similar consumer credit products are subject to Regulation Z. <FTNT> <SU>2</SU>  Consumer credit is also subject to Regulation Z in other circumstances. <E T="03">See, e.g.,</E> 12 CFR 1026.1(c). </FTNT> <FTNT> <SU>3</SU>  34 FR 2002 (Feb. 11, 1969). </FTNT> <FTNT> <SU>4</SU>  46 FR 20848, 20855 (Apr. 7, 1981). </FTNT> This exception was evidently intended to allow banks to continue providing limited overdraft services, as a courtesy to consumers who inadvertently overdrew their account, without the banks complying with Regulation Z. In the early years of the regulation, decisions to pay an item that overdraws an account instead of returning it unpaid were made as a relatively infrequent part of administering asset accounts. At the time, consumers typically withdrew funds from their bank accounts through in-person withdrawals or by writing checks. If a consumer mistimed when funds from a check deposit would be available for withdrawal  <SU>5</SU> <FTREF/> and inadvertently overdrew their account and the overdrawing check were returned unpaid, the bank would typically charge the consumer a nonsufficient funds (NSF) fee and the consumer could be subject to additional fees imposed by the payee and other negative consequences from bounced checks. If, instead of returning the check, the financial institution paid it notwithstanding the unavailable or insufficient funds in the account, such courtesy payment could provide a benefit to the consumer, who would avoid all of the negative consequences of a bounced check without being charged any additional fees beyond the amount charged for nonsufficient funds. <FTNT> <SU>5</SU>  In 1987, Congress enacted the Expedited Funds Availability Act (12 U.S.C. 4001 <E T="03">et seq.</E> ) to provide depositors of checks with prompt funds availability and to foster improvements in the check collection and return processes. <E T="03">See</E> 82 FR 27552, 27552 (June 15, 2017). Section 229.2(d) of Regulatio ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 458k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━