Rules limiting bank overdraft fees under review

President Donald Trump's administration is reviewing a 10-year-old federal rule that limits banks' ability to charge overdraft fees without customers' permission.

The move opens the door to a potential overhaul of regulations that the Consumer Financial Protection Bureau previously said saved consumers money but which the banking industry has argued needs an update.

The analysis will help the bureau determine whether the rule should remain intact, be amended or "rescinded to minimize any significant economic impact," the bureau said Monday. The effort is part of a new bureau initiative to assess how existing regulations affect small businesses, the bureau said.

Under the existing rule, banks and other financial institutions that issue credit or debit cards are required to get customers' permission before enrolling them in overdraft-protection programs. The policy was aimed at preventing customers from unwittingly incurring a $35 overdraft fee for a $3 latte, for example.

The requirements led to "a material decrease in the amount of overdraft fees paid by consumers," the bureau found in a 2013 report. But that report also found some drawbacks. Customers with overdraft protection still incurred $196 in overdraft fees on average, the report said.

"I am most concerned about the [bureau] using [the review] to water down the rule," said Linda Jun, senior policy counsel at Americans for Financial Reform. "For vulnerable consumers, overdraft fees often compound their vulnerabilities by making it even harder to recover."

The public will have 45 days to submit comments on the issue, the bureau said.

Banks typically charge customers about $35 each time they withdraw more than they have in their accounts. The industry made more than $11.5 billion from overdraft fees last year, according to FDIC data. For some small banks, overdraft charges account for 25% of their fee income, according to a report from Raymond James.

This comes at a time when the banking industry is under close scrutiny by Democrats in Congress. Sen. Bernie Sanders, I-Vt., and Rep. Alexandria Ocasio-Cortez, D-N.Y., have introduced legislation that would cap credit-card interest rates at 15%, and Sen. Elizabeth Warren, D-Mass., has proposed making it easier to jail bank executives for corporate misdeeds.

Democratic Sens. Cory Booker of New Jersey and Sherrod Brown of Ohio introduced a bill last year to ban overdraft fees on debit-card transactions and ATM withdrawals in many circumstances.

These Democratic plans have little chance of passing Congress this year, but banking industry analysts say they are likely to become talking points during the 2020 presidential campaign.

"This represents a risk to banks as it will further politicize overdraft fees," Jaret Seiberg, an analyst with Cowen's Washington Research Group, said of the bureau review.

The Independent Bankers Association said it welcomed review of the overdraft rule. It could "minimize the economic impact on community banks that provide this service as a safe and convenient option to help consumers to manage their financial shortfalls," said Rhonda Thomas Whitley, the group's vice president and regulatory counsel.

Business on 05/15/2019