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CFPB Proposes Overdraft Rule

The CFPB’s proposed rule would require very large financial institutions to treat overdraft loans like credit cards and other loans as well as to provide clear disclosures and other protections.

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Many banks and credit unions already provide lines of credit tied to a checking account or debit card when the consumer overdraws. According to the CFPB, “The proposal provides clear rules of the road to ensure consistency and clarity.” The proposed rule would apply to insured financial institutions with more than $10 billion in assets, but would likely impact credit unions of all sizes.

The CFPB also is proposing to limit the longstanding exemption to overdraft practices that are offered as a convenience, rather than as a profit driver. The proposed rule would allow financial institutions to charge a fee in line with their costs or in accordance with an established benchmark. The CFPB has proposed benchmarks of $3, $6, $7, or $14 and is seeking comment on the appropriate amount.

The proposed rule is open for public comment until April 1. After that, the CFPB will consider those comments, decide if the proposal needs to be amended and whether to issue a final rule. If it does, that rule likely would not go into effect until October 2025.

The Association is reviewing the proposed rule and will draft a comment letter to submit to the CFPB.

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