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CR Comment Letter on CFPB Proposed Overdraft Rule

Consumer Reports appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (CFPB) proposed rule to amend Regulations E and Z to update regulatory exceptions for overdraft credit provided by very large institutions.

Consumer Reports has long supported efforts to curb excessive overdraft fees. Overdraft fees have increased steadily over time, morphing from an occasional, ad hoc courtesy provided to consumers to a line of business. The CFPB estimates that consumers paid roughly $9 billion in overdraft fees in 2022 alone. Many overdraft services are effectively short-term lending programs with extremely high interest rates as banks provide short-term liquidity for overdrawn transactions in exchange for a fee. As noted by the CFPB, large banks typically charge $35 for an overdraft loan today, even though the majority of consumers’ debit card overdrafts are for less than $26 and are repaid in three days, which translates into an annual percentage rate (APR) of over 16,000 percent. These fees disproportionately impact low- and moderate-income consumers with excessive charges, often for small overdrafts on their accounts, and can trap consumers in debt.

We commend the CFPB for taking action in the proposed rule to curb excessive overdraft fees in a flexible manner by requiring that fees for “courtesy” overdraft services be in line with breakeven costs to financial institutions, while allowing for overdraft loans with higher rates as long as they comply with existing requirements and protections in the Truth in Lending Act (TILA). We believe that such an approach is practical and effective in protecting vulnerable consumers from misleading and abusive practices while still allowing consumers the freedom to access necessary services, but with full knowledge of associated costs. The CFPB estimates that the new limits could save consumers up to $5.6 billion annually, critical savings that could benefit vulnerable consumers in particular.

Consumers have also expressed strong support for the CFPB’s proposed rule, as indicated by the 28,708 signatures Consumer Reports received in support of the proposed rule, which can be found here.