CFPB closes overdraft loophole that exempted overdraft loans from lending laws

The Consumer Financial Protection Bureau took action to close an outdated overdraft loophole that exempted overdraft loans from lending laws. The agency’s final rule on overdraft fees applies to the banks and credit unions with more than $10B in assets that dominate the U.S. market. The reforms will allow large banks several options to manage their overdraft lending program: they can choose to charge $5; to offer overdraft as a courtesy by charging a fee that covers no more than costs or losses; or continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate. The final rule is expected to add up to $5B in annual overdraft fee savings to consumers, or $225 per household that pays overdraft fees. “For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said CFPB Director Rohit Chopra. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans.” Publicly traded companies in the space include Bank of America (BAC), Citi (C), Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS), U.S. Bancorp (USB) and Wells Fargo (WFC).