Last week, Bloomberg Law reported that “Consumer Financial Protection Bureau officials have privately told industry executives that the regulator will likely unveil its long-awaited plan to crack down [on overdraft fees] in December, according to people familiar with the discussions. The CFPB has been crafting the regulations for months, and most of the details remain secret.” The CFPB has not made any recent public statements these rulemaking efforts.

The CFPB included both overdrafts and insufficient funds (NSF) fees on its rulemaking agenda for Spring 2023 and its Fall 2022 and designated the rulemaking to be in the “prerule stage,” with pre-rule activity estimated to occur in November 2023. Regarding overdrafts, the CFPB’s Spring 2023 agenda stated:

Financial institutions offer various types of overdraft services, some of which are subject to Regulation Z and some of which are not. Whether Regulation Z applies depends on whether fees imposed in connection with those services (overdraft fees) are considered finance charges. When the Federal Reserve Board first adopted Regulation Z in 1969, it created special rules for determining whether overdraft fees are considered finance charges. While the nature of overdraft services, including how accounts can be overdrawn and how financial institutions determine whether to advance funds to pay the overdrawn amount, has significantly changed since 1969, the special rules remain largely unchanged. The CFPB is considering whether to propose amendments to Regulation Z with respect to these special rules.

The CFPB’s Regulation Z (12 CFR § 1026.2 (15)(ii) excludes overdraft lines of credit accessed by a debit card or account number from the definition of credit card account.

Regarding NSF fees, the CFPB’s Spring 2023 agenda stated:

Consumers using deposit accounts sometimes engage in transactions that exceed their accounts’ balances. Sometimes the depository institution will pay that transaction, resulting in an overdraft, but in many situations the depository institution will decline to pay the transaction and charge the consumer a “non-sufficient fund” (NSF) fee. Until recently, NSF fees were a significant source of fee revenue from deposit accounts for depository institutions; lately some financial institutions have voluntarily stopped charging such fees. The Bureau is considering new rules regarding NSF fees.

The CFPB does not appear to be considering changes to its overdraft regulations found in Regulation E (12 CFR § 1005.17) and Regulation DD (12 CFR § 1030.11). Regulation E sets forth the opt-in requirements and disclosures for assessing fees for paying ATM or one-time debit card transactions, prohibits conditioning payment of other overdrafts on a consumer’s affirmative consent, and requires same account terms, conditions and features for consumer who do not consent to overdraft service. Regulation DD sets forth the requirement to disclose total overdraft and returned item (NSF) fees by statement cycle and year, advertising disclosure for overdraft services, and disclosing the account balance in automated systems that excludes additional amounts that may be used to cover an item through the overdraft service or overdraft protection accounts.

As we have previously blogged, overdraft and NSF fees have been under attack as so-called “junk fees” by the Biden Administration and federal regulators. The CFPB has frequently reported on overdraft and NSF fee revenues and practices. Overdraft and NSF fees were addressed in the CFPB’s Supervisory Highlights issues focused on “junk fees” in October and March. The October issue addressed unfair practices related to charging NSF fees on re-presented items and charging overdraft fees when transactions are authorized against a positive account balance but settle against a negative account balance.

The CFPB reports in a May 24, 2023 Data Spotlight a nearly 50% decline in overdraft and NSF fee revenues compared to pre-pandemic levels and changed the industry trends, such as:

• eliminating NSF fees charged when transactions bounce;
• reducing the overdraft fee amount;
• reducing the number of overdraft/NSF fees the bank can charge you each day;
• providing or increasing the amount an account can go negative before charging an overdraft fee;
• providing a grace period to bring the account back to positive before charging an overdraft fee; and
• eliminating “extended” or “sustained” overdraft fees charged when the account is not brought back to a positive balance after a certain period of time.

This CFPB data calls into question the need for CFPB rulemaking on overdraft/NSF fees. The Bloomberg Law report did not address if new rules regarding NSF fees would be included in the imminent rulemaking. If not included in the rulemaking, we would expect a rulemaking on NSF fees to soon follow given the CFPB’s frequent policy statements and enforcement actions related to NSFs.

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