The Consumer Financial Protection Bureau released its proposed rule to treat overdraft features for deposit accounts as credit, subject to the Truth in Lending Act (TILA) and its implementing rules, Regulation Z. The proposal is designed to close a "loophole" that currently exempts overdraft features (subject to the Electronic Fund Transfer Act (EFTA) and its implementing rules, Regulation E) from TILA and related consumer financial protection laws.
While the industry digests the 211-page rulemaking, here are some key things to note:
- The rulemaking only applies to "very large financial institutions" – insured depository institutions and credit unions with more than $10 billion in assets, and then generally only to overdraft credit provided by these institutions "unless it is provided at or below costs and losses as a true courtesy to consumers."
- If applicable, the commercial and regulatory impact on these very large financial institutions may be great. Indeed, business lines at these financial institutions that traditionally focused on deposit products would need to also understand the impact on those products introduced by TILA and Regulation Z, as revised by the CFPB to implement the new rule.
- We have already seen the impact of applying credit laws to overdraft-like features on prepaid cards. The rules governing hybrid prepaid-credit cards require compliance with both Regulation E (with respect to prepaid aspects of the hybrid card) and Regulation Z (with respect to its credit aspects). This effectively eliminated hybrid prepaid-credit products from the market.
- Comments are due April 1, 2024.
- The CFPB expects that the final rule, if adopted, would take effect by October 1, 2025 (or otherwise the October 1 following at least six months from the date that the final rule is published in the Federal Register).
DWT regularly advises clients on CFPB developments and will continue to monitor updates in this space. Please contact Brian Hurh with any questions.