Bureau’s overdraft fee proposal would limit charges for very large banks; disclosures also required

Overdraft fees would be limited for very large banks – those with $10 billion or more in assets – to no more than $14 or less under a new rule proposed Wednesday by the federal consumer financial protection agency.

The proposal would require the big banks (and other instititutions, including credit unions) to treat overdrafts (which the rule refers to as loans) like credit cards and other loans as well as to provide clear disclosures and other protections.

“Many banks and credit unions already provide lines of credit tied to a checking account or debit card when the consumer overdraws,” the Consumer Financial Protection Bureau (CFPB) said in a statement. “The proposal provides clear rules of the road to ensure consistency and clarity.”

The proposal limits a Federal Reserve exemption to Truth in Lending (TIL) rules written more than 50 years ago that allow a bank to honor a check when the depositor “inadvertently” overdrew their account. “At the time, this was used infrequently and there was a modest cost,” CFPB asserted. “It was not a major profit driver.”

The proposal, the agency said, would allow financial institutions to charge a fee in line with their costs or in accordance with an established benchmark. The CFPB said the proposal sets benchmarks of $3, $6, $7, or $14 and is seeking comment on the appropriate amount.

In addition to the benchmarked fee amounts, the agency also proposes that the large banks issue interest rate disclosures along with the fees that they charge.

CFPB Proposes Rule to Close Bank Overdraft Loophole that Costs Americans Billions Each Year in Junk Fees