The Consumer Bankers Association (CBA) is among a group of entities taking legal action against the Consumer Financial Protection Bureau’s (CFPB) final rule on overdraft services.
The American Bankers Association (ABA), America’s Credit Unions, Mississippi Bankers Association, and banks directly affected by the rule are also part of the suit.
The rule in question amends Regulations E and Z to update regulatory exceptions for overdraft credit provided by very large financial institutions. The CFPB said the overdraft rule seeks to adhere to consumer protections required of similarly situated products, unless the overdraft fee is a small amount that only recovers estimated costs and losses. Further, the CFPB says the rule allows consumers to better comparison shop across credit products.
However, CBA and the other entities say that the CFPB exceeds its regulatory authority with this new rule. Further, they say the CFPB fails to appropriately consider how its actions will harm the consumers who most benefit from the access to the liquidity enabled by overdraft services.
“The CFPB’s rule on overdraft services harms Americans who need it most – including the 26 million Americans who don’t have access to credit and thus stand to lose the most if overdraft services are restricted,” CBA President and CEO Lindsey Johnson said. “Overdraft services are an essential lifeline for consumers when they experience unexpected expenses. Research shows that overdraft services provide much-needed liquidity during a short-term budget shortfall so consumers can put food on the table, keep the lights on, and make other important payments on time. Without overdraft services, consumers on the margins are more likely to turn toward worse, less-regulated non-banking services to fill the gap.”
Data shows, said Johnson, that consumers value overdraft services. Further, she said banks have innovated in recent years to make these services more consumer-friendly by offering real-time payment updates, grace periods, payment control, low-balance alerts, and no-fee overdraft accounts.
“While it is unfortunate, CBA had no choice but to pursue legal action to counter the CFPB’s blatant statutory overreach with its misguided rule to ensure consumers continue to have access to liquidity through overdraft services,” Johnson said.
The complaint was filed in the United States District Court for the Southern District of Mississippi, Northern Division. CBA and its co-plaintiffs will seek a preliminary injunction barring the CFPB from implementing the new rule until the court makes a final decision on the merits of the case.
“It’s unfortunate that we have to turn to the courts once again to rein in a CFPB director unwilling to recognize the clear legal boundaries set by Congress. The CFPB’s final overdraft rule exceeds the Bureau’s statutory authority, ignores thoughtful industry and stakeholder feedback, and will harm the very consumers the CFPB claims to protect. Surveys consistently show that Americans understand and appreciate overdraft protection, and if this rule is allowed to move forward, many Americans will lose this service. Consumers don’t want that to happen, which is why we have joined this litigation. We look forward to the court’s review,” ABA President and CEO Rob Nichols said.
Ultimately, the plaintiffs argue that the CFPB does not have the statutory authority to cap prices on services by financial institutions. They also state that overdraft services do not meet the statutory definition of credit. Further, they contend that the CFPB’s final rule reverses 50 years of legal precedent without sufficient justification.
“Everyone should have access to services that allow them to make ends meet without having to choose between buying groceries or paying a utility bill. These financial hardships have serious consequences on families, and overdraft programs provide an affordable lifeline in these circumstances,” America’s Credit Unions President and CEO Jim Nussle said.