Regulators Sharpen Focus on Overdraft Practices

The Consumer Financial Protection Bureau (CFPB) recently released two research reports which highlight overdraft practices in U.S. financial institutions.  In addition, in his prepared remarks, Director Chopra indicated that the CFPB will be focusing on overdraft practices in upcoming examinations:

“Congress has charged the CFPB with ensuring that markets for consumer financial products are fair, transparent, and competitive. To that end, the CFPB will be enhancing its scrutiny of banks that are heavily dependent on overdraft fees.

First, the CFPB will take action against large financial institutions whose overdraft practices violate the law. In investigating, the CFPB will also seek to uncover the individuals who directed any illegal conduct. The CFPB is also considering additional policy guidance outlining unlawful practices. Law-abiding institutions should not be disadvantaged by these practices.

Second, I’ve asked the CFPB’s bank examiners to prioritize examinations of banks that are heavily reliant on overdraft. Financial institutions that have a higher share of frequent overdrafters or a higher average fee burden for overdrafting should expect us to be paying them close supervisory attention. Ultimately, we plan to inform institutions on where they stand relative to their peers with overdraft. We believe sharing that information will increase transparency and help against the race to the bottom we have seen in this market.”

Previous focuses on examination areas by the CFPB are often followed by similar scrutiny by the other financial institution regulators. In Washington state, the Department of Financial Institutions Division of Credit Unions (DCU) has been looking into the courtesy pay programs of state-chartered credit unions as part of the safety and soundness examination in recent years.

Some of the areas of improvement highlight by the DCU have been:

  • Establish a de minimus threshold below which an Overdraft fee will not be paid.
  • Place a cap on the number of fees per day.
  • Put in place a practice to reach out to members who are excessively using courtesy pay.
  • Have a forgiveness period that allows a member to cure the negative balance by end of next day before being assessed a fee.

While the regulatory interest in overdraft practices is a recent trend, credit unions should keep in mind the continuing litigation surrounding these services. For more information and best practices please refer to this NWCUA compliance bulletin and this NWCUA risk alert.

Question of the Week

Q. Regarding the Risk-Based Pricing Notice, when the notice is handed out by an auto-dealer for an indirect loan, which agency must be listed? When handed out by the credit union?

A. The regulation implementing the Fair Credit Reporting Act states that both the FTC and the CFPB should be listed on risk-based pricing notices. The model forms also included both agencies. As a result, both agencies should be listed regardless of the entity providing the notice.

Related Links

16 CFR 640.4(a)(1)(vii)
Model Forms and Disclosures

Compliance Alerts

National Credit Union Administration

2022 Regulation Z Annual Threshold Adjustments: The NCUA issued Regulatory Alert 21-RA-10 to inform credit unions that the CFPB has released annual threshold adjustments for certain parts of Regulation Z.

Credit Unions See Continued Share and Deposit Growth in Third Quarter: The NCUA released financial performance data for federally insured credit unions for the third quarter of 2021.

Consumer Financial Protection Bureau

CFPB Research Shows Banks’ Deep Dependence on Overdraft Fees: The CFPB issued 2 reports on overdraft fees which show that while there has been a drop in overdraft fees collected, many fee harvesting practices persist. Credit unions tend to rely less on overdraft fees than large banks.

CFPB Makes Additional Annual Threshold Adjustments

The CFPB released annual threshold adjustments for Appraisals for Higher-Priced Mortgage Loans and the Regulation Z exemption threshold.

Federal Financial Institution Examination Council

FFIEC Updates BSA/AML Examination Manual: The FFIEC released one new section and updated three sections of the BSA/AML examination manual.

Financial Crimes Enforcement Network

FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance: FinCEN announced an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a potential rule to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity. The rule will focus on real estate purchases without financing.

Office of Foreign Assets Control

OFAC has updated the SDN list as of Dec. 6. The last update prior to this was Nov. 23.

­­­­­­­­­­­­­­­­­Questions? Contact the Compliance Hotline: 1.800.546.4465;

Posted in Compliance News, Compliance News, Compliance Question.