State AGs oppose CFPB efforts to roll back overdraft rule

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Twenty-five state attorneys general are opposing efforts by the Consumer Financial Protection Bureau to roll back or amend a regulation designed to rein in overdraft fees. Instead, the state enforcement officials are seeking even stricter limits.

New York Attorney General Letitia James sent a letter to CFPB Director Kathy Kraninger saying there is “no basis to believe” that the overdraft rule has harmed small banks and credits unions financially.

The letter, signed by 25 Democratic state attorneys general and officials from the District of Columbia and Hawaii's Office of Consumer Protection, said there is no data to support a change by the bureau.

"We are aware of no evidence or other basis to believe that the Overdraft Rule places any economic burdens or costs on smaller financial institutions, or indeed on financial institutions generally," state law enforcers said in the 10-page letter, dated July 2. "Any marginal reduction in earnings resulting from the imposition of fewer overdraft fees is not a basis for modifying a rule."

The states attorneys general were responding to a CFPB proposal in May to review whether the overdraft rule should be amended or rescinded in order to minimize any significant economic impact on small banks and credit unions. The bureau is seeking public comment on the issue.

The overdraft rule was first issued by the Federal Reserve Board in 2009 and required banks starting a year later to provide consumers with an opt-in notice to overdraft fees when opening a checking account. Banks also must explain overdraft fees, which can cost up to $35. The CFPB gained oversight of the rule after the agency was created in 2011.

“We believe that any decision to rescind or roll back the requirements of the overdraft rule would be a serious and harmful mistake and urge the CFPB not to do so,” the letter said.

In 2017, banks with assets of more than $1 billion collected over $11.5 billion in overdraft and nonsufficient-funds fees. The attorneys general called on the CFPB to release data collected in 2015 from more than 4,000 small financial institutions with assets of less than $550 million that could shed light on overdraft practices and consumer outcomes.

"This [data] omission is surprising given the focus of the Request for Comment on the potential economic impacts of the overdraft rule on small institutions," the letter stated. "Had this data showed results that diverged significantly from the CFPB’s earlier research on larger banks summarized above, or suggested negative economic impacts on small financial institutions, the CFPB presumably would have included or at least cited to those results in its Request for Comment so that the public could meaningfully comment on it."

The states raised some of the same issues the Fed did when it initially proposed the regulation more than a decade ago. At the time, Congress, government agencies and consumer groups were concerned about the increased use of overdraft services by banks and and whether consumers understood how to avoid paying the fees.

Rescinding or amending the overdraft rule would affect consumers who are struggling to make ends meet, the state attorneys general said.

“The overdraft rule is benefiting many consumers who are among the least well off economically and financially,” the letter stated.

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