The Consumer Financial Protection Bureau is exempting smaller banks from a final rule capping overdraft fees.
The CFPB’s final rule required banks with more than $10 billion of assets to either cap fees at $5, determine a fee that covers costs and losses, or disclose the terms of overdrafts like they would other loans.
“For financial institutions that wish to profit from overdraft lending, they may do so by complying with the standard requirements governing other loans, like credit cards,” the bureau said. “This would include giving consumers a choice on whether to open the line of overdraft credit, providing account-opening disclosures that would allow comparison shopping, sending periodic statements, and giving consumers a choice of whether to pay automatically or manually.”
The bureau noted that smaller banks, for the most part, are more reliant on overdraft and nonsufficient funds (NSF) fees. A review of call reports found that those fees account for 44% of deposit service charges at banks with $1 billion to $10 billion of assets. In comparison, such fees account for just a fifth of deposit service charges at bigger banks.
The CFPB brushed off an argument made by some smaller banks that consumers might migrate more business to bigger banks with capped fees.
“To the extent that some consumers become more sensitive to overdraft fees … the CFPB expects that small institutions will find ways to offer these consumers value that convinces them to stay,” the bureau said.
The final rule will take effect on Oct. 1.