On Jan. 17, 2024, the Consumer Financial Protection Bureau (CFPB) finally issued a proposed rule on what it now calls overdraft loans. To the surprise of some, the 211-page proposed rule only applies to 175 financial institutions, those larger than $10 billion in assets. The proposed rule, in effect, gives larger financial institutions two choices:

1. They can treat overdrafts like a credit card and comply with Regulation Z, and the rules around finance charges, disclosures, etc. Provisions of the CARD Act would also apply to such overdraft credit and include ability-to-pay underwriting requirements, limitations on penalty fees including certain fees on transactions that are declined due to insufficient funds, and various requirements related to rate changes.
2. They can treat overdrafts like a true courtesy and only charge an amount necessary to cover its costs and losses. That amount could possibly be $3, $6, $7, or $14, or some other amount that the financial institution determines is the breakeven point based on a formula. Courtesy overdrafts would continue to be subject to the opt-in requirements for one-time debit card and ATM transactions.

The CFPB has an expected date for compliance of Oct. 1, 2025. The agency will monitor the impact of the rule after it goes final, and then decide whether to apply it, or something similar, to all financial institutions.

Have additional questions regarding the proposed rule and its impact on your institution? Our regulatory compliance specialists are here to help.