WASHINGTON–A group of congressional Republicans hasn’t wasted any time since taking over the majority in the House in calling on the CFPB to withdraw its proposal on overdraft fees.
As CUToday.info reported, in early January, the CFPB issued its Fall Rulemaking Agenda, including a rule on overdrafts that is in the “pre-rule” stage of rulemaking. Both credit union trade groups have already registered their “concerns” over any restrictions that may be put in place by the Bureau.
Led by Rep. Blaine Luetkemeyer (R-MO), chair of the Subcommittee on Consumer Protection and Financial Institutions, the letter to the Bureau notes that the CFPB had stated it will examine the rules governing whether an overdraft fee is considered a finance charge under Regulation Z (Reg Z), which implements the Truth in Lending Act (TILA).
‘Significant and Notable Change’
“Identifying overdraft fees as a finance charge is a significant and notable change for overdraft coverage products and defies over 50 years of consumer finance law,” the letter reads. “It would drastically limit, and in many cases outright prevent, the ability of financial institutions to provide emergency, short term liquidity to consumers who need it most. If the Bureau places overdraft products under Regulation Z, the difficulty placed on financial institutions to provide short term liquidity through overdraft cannot be overstated.
“If the Bureau believes each overdraft fee is a finance charge, it must also consider each overdraft coverage an extension of credit under Reg Z,” the letter continues. “This would force financial institutions to know the exact moment when a consumer is overdrafting their account and simultaneously present them with a TILA disclosure form regarding the specific purchase being made by a consumer. Even if this was possible, the consumer would then have to fill out the appropriate TILA forms, send them back to the institution, and the institution would have to approve the extension of liquidity all before the consumer could make a purchase.”
‘Astounding Red Tape’
The letter goes on to suggest, “the amount of red tape needed for a consumer to make an overdraft purchase…would truly be astounding under this potential rule. Even if all these mechanisms were possible, the sheer impracticality would result in the elimination of overdraft protection for consumers.”
The letter from the congressional group calls the CFPB plan “impractical,” saying that requiring financial institutions to determine the APR of an overdraft product, which does not have a specific, defined term length, would place additional hurdles on financial institutions to meet the liquidity needs of consumer, “which are dire.”
The letter also cites Federal Reserve data showing a quarter of all U.S. adults have reported having trouble paying bills.
Different Approach Urged
“The Bureau should not be exploring ways in which to eliminate options for these consumers and should instead seek to understand how these consumers use overdraft as a means of meeting their financial needs,” the letter reads.
The letter cites a separate study that found more than 60% of overdrafts come from consumers who intend to use the service and more than 80% of overdraft transactions come from consumers who opted into debit card overdraft programs with the clear intention of using it to cover their payments.
“We urge you to protect consumers by withdrawing the pre-rule on overdraft,” the letter concludes.
‘Living Up to His Promise’
In response to the letter, John McKechnie, a partner in the Washington advocacy firm Total Spectrum said, “In some quarters, there was a belief that the ODP issue was going to elicit a lot of jawboning, but not much else. I was always in the other camp.
“By putting the issue on his Rulemaking Agenda last month, Director Chopra is showing he meant it last year when he said he would eventually look at writing a reg. And by sending this letter Chairman Luetkemeyer is living up to his promises to push back against what he sees as overreach at CFPB, on the overdraft issue specifically,” McKechnie continued. “The entire 118th Congress is likely to feature a lot of this back-and-forth. CFPB is going to be facing an aggressive House Republican majority that has an appetite to question almost every one of its priorities.”
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