On May 15, 2019, the CFPB published a Request for Comment on its Overdraft Rule (“Rule”) to assist the agency in determining whether the Rule should be revised, rescinded, or left as is. Originally published in November 2009 by the Federal Reserve Board, the Rule amended Regulation E, which implements the Electronic Fund Transfer Act (“EFTA”), by prohibiting financial institutions from assessing an overdraft fee for ATM or one-time debit card transactions without the consumer’s affirmative consent. In 2011, the CFPB assumed rulemaking responsibility under the EFTA pursuant to the Dodd-Frank Act.
The Rule prevents a financial institution from imposing a fee or charge on a consumer’s account for paying an ATM or one-time debit card overdraft transaction when the consumer has insufficient or unavailable funds, unless the institution: (1) provides the consumer with a notice that describes the institution’s overdraft service, including the fees that may be assessed; (2) provides a reasonable opportunity for the consumer to affirmatively consent (“opt in”) to the overdraft service; (3) obtains the consumer’s affirmative opt in to the overdraft service; and (4) provides the consumer with written or electronic confirmation of this consent and a statement informing the consumer of the right to revoke the consent.
In its Request for Comment, the CFPB asked for public input on the Rule, including:
- The nature and extent of the benefits of the Rule, as well as the economic impacts of the Rule, including the impacts of the reporting, recordkeeping, and other compliance requirements; and
- Whether and how the CFPB could, by regulation, reduce the costs of the Rule on small entities.
The Request for Comment follows a period of uncertainty regarding the potential regulation of overdraft fees more generally. Since 2012, the CFPB had been studying overdraft practices and fees and collecting data on overdraft practices, including how consumers opt in to overdraft coverage; overdraft coverage limits; posting order practices; overdraft and NSF fee structures; and involuntary account closures. Most recently, in August 2017, the CFPB requested public comment, and received more than 40 comment letters, on potential revisions to the Rule’s model notice form. The CFPB also received 10 comment letters about checking account overdrafts in response to its 2018 Call for Evidence Initiative, which requested input on inherited regulations.
In its Spring 2018 semi-annual rulemaking agenda, published in May 2018, the CFPB designated overdraft services rulemaking efforts as “inactive” due to the “expectation that final decisions on whether and when to proceed with such projects will be made by the Bureau’s next permanent director.” After almost a year of silence on rulemaking efforts, the CFPB signaled that future rulemaking on overdraft services was possible when Director Kathy Kraninger noted during a March 7, 2019 hearing before the House Committee on Financial Services that the CFPB was continuing to review overdrafts.
The Request for Comment is part of the CFPB’s plan to review rules “that have or will have a significant economic impact upon a substantial number of small entities, pursuant to section 610 of the Regulatory Flexibility Act” (“RFA”), which requires an agency to review all relevant rules within 10 years of their publication as final rules.
Through the Rule review under the RFA, the CFPB focuses on the potential for regulatory relief or clarifications, as opposed to additional limitations on overdraft services. One indication of the CFPB’s leaning may be found in a statement in the Request for Comment that the CFPB does not attribute changes in overdraft practices that have the general effect of limiting overdraft fees to the existing Rule.
Along with the Request for Comment on the Rule, the CFPB published and requested comment on its RFA review plan. Under the plan, the CFPB will initiate reviews of rules deemed to have a “significant economic impact upon a substantial number of small entities” about nine years after each rule’s publication. The reviews will consider: (1) the continued need for the rule; (2) the nature of public complaints or comments on the rule; (3) the complexity of the rule; (4) the extent to which the rule overlaps, duplicates, or conflicts with Federal, state, or other rules; and (5) the time since the rule was last evaluated or the degree to which technology, market conditions, or other factors have changed the relevant market. The CFPB will publish notice of the rules it plans to review in the upcoming year, and will invite public comment on each rule to be reviewed.
Comments on the Rule are due by July 1, 2019, and comments on the RFA plan are due by July 15, 2019.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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