[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Proposed Rules]
[Pages 21729-21732]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09812]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005

[Docket No. CFPB-2019-0023]


Overdraft Rule Review Pursuant to the Regulatory Flexibility Act

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Notice of section 610 review and request for comments.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
conducting a review of the Overdraft

[[Page 21730]]

Rule consistent with section 610 of the Regulatory Flexibility Act. As 
part of this review, the Bureau is seeking comment on the economic 
impact of the Overdraft Rule on small entities. These comments may 
assist the Bureau in determining whether the Overdraft Rule should be 
continued without change, or amended or rescinded to minimize any 
significant economic impact of the rules upon a substantial number of 
such small entities, consistent with the stated objectives of 
applicable statutes.

DATES: Comments must be received by July 1, 2019.

ADDRESSES: You may submit responsive information and other comments, 
identified by Docket No. CFPB-2019-0023, by any of the following 
methods:
     Electronic: Go to http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Email: [email protected]. Include 
Docket No. CFPB-2019-0023 in the subject line of the message.
     Mail: Comment Intake, Consumer Financial Protection 
Bureau, 1700 G Street NW, Washington, DC 20552.
     Hand Delivery/Courier: Comment Intake, Consumer Financial 
Protection Bureau, 1700 G Street NW, Washington, DC 20552.
    Instructions: The Bureau encourages the early submission of 
comments. All submissions must include the document title and docket 
number. Please note the specific rule or topic on which you are 
commenting at the top of each response (you do not need to address all 
rules or topics). Because paper mail in the Washington, DC area and at 
the Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1700 G 
Street NW, Washington, DC 20552, on official business days between the 
hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment 
to inspect the documents by telephoning 202-435-7275.
    All submissions in response to this request for information, 
including attachments and other supporting materials, will become part 
of the public record and subject to public disclosure. Proprietary 
information or sensitive personal information, such as account numbers 
or Social Security numbers, or names of other individuals, should not 
be included. Submissions will not be edited to remove any identifying 
or contact information.

FOR FURTHER INFORMATION CONTACT: Joseph Baressi and Gregory Evans, 
Senior Counsels, Office of Regulations, at 202-435-7700. If you require 
this document in an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:  The Regulatory Flexibility Act \1\ (RFA) 
requires each agency to consider the effect on small entities for 
certain rules it promulgates.\2\ Specifically, section 610 of the RFA 
\3\ provides that each agency shall publish in the Federal Register a 
plan for the periodic review of the rules issued by the agency which 
have or will have a significant economic impact upon a substantial 
number of small entities.
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    \1\ Public Law 96-354, 94 Stat. 1164.
    \2\ The term ``small entity'' is defined in the RFA. See 5 
U.S.C. 601(6).
    \3\ 5 U.S.C. 610(a).
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    The Bureau is publishing such a plan separately in this issue of 
the Federal Register. Section 610 provides that the purpose of the 
review shall be to determine whether such rules should be continued 
without change, or should be amended or rescinded, consistent with the 
stated objectives of applicable statutes, to minimize any significant 
economic impact of the rules upon a substantial number of such small 
entities.\4\ As also set forth in section 610, in each review agencies 
must consider several factors:
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    \4\ 5 U.S.C. 610(a).
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    1. The continued need for the rule;
    2. The nature of public complaints or comments on the rule;
    3. The complexity of the rule;
    4. The extent to which the rule overlaps, duplicates, or conflicts 
with Federal, State, or other rules; and
    5. The time since the rule was evaluated or the degree to which 
technology, market conditions, or other factors have changed the 
relevant market.\5\
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    \5\ 5 U.S.C. 610(b).
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    The following section lists and briefly describes the rule that the 
Bureau plans to review in 2019 under the criteria described by section 
610 of the RFA and pursuant to the review plan published separately in 
this issue of the Federal Register. The Bureau expects to publish a 
notice in summer 2019 identifying the rules that will be the subject of 
section 610 reviews in 2020.

I. List of Rules for Review

    This section lists and briefly describes the rule that the Bureau 
plans to review in 2019 under the criteria described by section 610 of 
the RFA and pursuant to the Bureau's review plan.

A. Federal Reserve Board Overdraft Rule

i. The Rule
    In November 2009, to address overdraft practices, the Board of 
Governors of the Federal Reserve System (Board) published a final rule 
amending Regulation E, which implements the Electronic Fund Transfer 
Act \6\ (EFTA), and the official staff commentary to the regulation, 
which interprets the requirements of Regulation E.\7\ Specifically, 
pursuant to its authority under EFTA sections 904(a), (b), (c), and 
905,\8\ the Board issued a rule (Overdraft Rule or Rule) that limits 
the ability of financial institutions to assess overdraft fees for 
paying automated teller machine (ATM) and one-time debit card 
transactions that overdraw consumers' accounts.\9\ The Board stated 
that the Overdraft Rule is intended to carry out the express purposes 
of the EFTA by: (a) Establishing notice requirements to help consumers 
better understand the cost of overdraft services for certain electronic 
fund transfers; and (b) providing consumers with a choice as to whether 
they want overdraft services for ATM and one-time debit card 
transactions in light of the costs associated with those services.\10\ 
Under the Rule, financial institutions must not assess a fee or charge 
on a consumer's account for paying an ATM or one-time debit card 
overdraft transaction, unless the institution, among other things, 
obtains the consumer's affirmative consent, or opt-in, to the 
institution's payment of overdrafts for these transactions.\11\ Under 
the Overdraft Rule, before a consumer may affirmatively consent, the 
financial institution must ``provide[] the consumer with a notice in 
writing, or if the consumer agrees, electronically, segregated from all 
other information, describing the institution's overdraft service.'' 
\12\ This notice must include specific information, such as the fees 
imposed for paying such overdrafts, and the notice must also be 
``substantially similar'' to a model form set forth in appendix A of 
the regulation (Model Form A-9).\13\ The Bureau recodified Regulation 
E, including the amendments made by the Overdraft Rule, in 2011 when 
the Bureau assumed rulemaking responsibility under

[[Page 21731]]

EFTA.\14\ The Overdraft Rule is now set forth within Subpart A of the 
Bureau's Regulation E, 12 CFR part 1005.\15\
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    \6\ 15 U.S.C. 1693 et seq.
    \7\ 74 FR 59033 (Nov. 17, 2009). See also clarifications that 
the Board published in June 2010. 75 FR 31665 (June 4, 2010).
    \8\ 15 U.S.C. 1693b(a), (b), (c), 1693c.
    \9\ See 74 FR 59033, 59037 (Nov. 17, 2009).
    \10\ Id.
    \11\ See 12 CFR 1005.17(b)(1)(iii).
    \12\ See 12 CFR 1005.17(b)(1)(i).
    \13\ See 12 CFR 1005.17(d).
    \14\ 76 FR 81019 (Dec. 27, 2011).
    \15\ See generally 12 CFR 1005.17. These provisions were 
originally adopted by the Board in 12 CFR part 205 but, upon 
transfer of authority by the Dodd-Frank Act to implement EFTA to the 
Bureau, were renumbered as 12 CFR part 1005. 76 FR 81020 (Dec. 27, 
2011).
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ii. The Market
    Consumers with checking accounts sometimes attempt transactions for 
amounts that exceed their account balance. Financial institutions that 
offer checking accounts may decide whether to allow such transactions 
to go through (an overdraft) and whether to charge fees in connection 
with the overdraft (subject to some restrictions). These decisions 
depend on a number of factors, including the type of transaction, the 
financial institution's policies, procedures, and technological 
systems, and regulatory requirements. In the case of a check or an 
Automated Clearing House (ACH) transaction, the financial institution 
may either return a transaction attempt that exceeds a consumer's 
account balance unpaid for non-sufficient funds (NSF), or process the 
transaction, in which case an overdraft occurs. If a consumer attempts 
a one-time debit card transaction or an ATM withdrawal, the financial 
institution either authorizes or declines the transaction within 
seconds of the consumer's request. A declined transaction does not 
result in a fee. If the transaction is authorized, the financial 
institution will later settle the transaction, which might occur on the 
same day, or as long as three business days later.
    The Bureau believes that the majority of financial institutions 
offering checking account overdraft services chose to offer consumers 
the opportunity to opt-in to those services. Some financial 
institutions, however, chose not to implement an opt-in regime. Of 
those financial institutions, some may have elected to provide 
overdraft services for ATM and one-time debit card transactions, but 
not charge a fee. Other financial institutions that chose not to offer 
opt-in elected generally to decline ATM and one-time debit card 
transactions that would overdraw the account, although certain 
authorized transactions may nonetheless have resulted in an overdraft 
later at settlement. Bureau research suggests that a transaction 
authorizing with a sufficient balance, but later settling with a 
negative balance is a common occurrence for frequent overdrafters who 
have not opted in.\16\
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    \16\ CFPB, Data Point: Frequent Overdrafters (Aug. 2017) at 28, 
available at https://www.consumerfinance.gov/documents/5126/201708_cfpb_data-point_frequent-overdrafters.pdf.
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    The Bureau has found that the share of consumers who have opted in 
varies widely by institution, but in general it is considerably less 
than half.\17\ This underscores the variation among financial 
institutions and their customers in their desire to offer or use 
overdraft on card-based transactions. The Bureau has estimated in 2013 
that the rule led to a material decrease in the amount of overdraft 
fees paid by consumers.\18\
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    \17\ CFPB, CFPB Study of Overdraft Programs: A White Paper of 
Initial Data Findings (June 2013) at 29, available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf. This report covers a number of larger banks. The 
Bureau has obtained data with respect to practices at smaller banks 
and credit unions which is consistent with the Bureau's finding. The 
Bureau will consider those data in connection with this review.
    \18\ CFPB, CFPB Study of Overdraft Programs: A White Paper of 
Initial Data Findings (June 2013) at 39, available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.
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    With regard to the type of transactions taking place, there has 
been substantial growth in debit card-based transactions both due to 
more consumers using debit cards and those with debit cards using them 
more. There have been technological changes making debit card 
acceptance more ubiquitous, such as the introduction of tablet and 
smartphone-based point of sale terminals and a growing number of online 
and mobile marketplaces, retailers, and service providers. There has 
also been a growing comfort among consumers in making electronic 
payments.
    Since the issuance of the Overdraft Rule, the Bureau has observed 
several changes in overdraft practices at a number of financial 
institutions. These include: (i) Changes in the order in which 
different categories of transactions are posted, which has resulted in 
a diminution in the number of overdraft transactions; (ii) limits on 
the number of overdraft fees that some financial institutions may 
charge in a single business day; and (iii) ``cushions'' which preclude 
assessing overdraft fees on de minimis amounts. The Bureau does not 
have reason to believe that these changes are attributable to the Rule.
iii. Bureau Resources and Analysis
    The Bureau has conducted research relevant to the Overdraft Rule. 
In 2012, the Bureau launched an inquiry into overdraft, paralleling 
work that the Bureau was undertaking to examine other types of short-
term credit products. The Bureau obtained aggregate and anonymized 
account-level data from large banks as part of this inquiry, which 
Bureau researchers extensively analyzed. The Bureau shared some of its 
findings through a June 2013 White Paper, July 2014 Data Point, and 
August 2017 Data Point.\19\
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    \19\ CFPB, CFPB Study of Overdraft Programs: A White Paper of 
Initial Data Findings (June 2013), available at http://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf; CFPB, Data Point: Checking account overdraft (July 
2014), available at http://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf; CFPB, Data Point: 
Frequent Overdrafters (Aug. 2017), available at https://www.consumerfinance.gov/documents/5126/201708_cfpb_data-point_frequent-overdrafters.pdf.
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    In 2015, the Bureau obtained de-identified information from core 
processors on 4,091 financial institutions for a single 12-month period 
around 2014. The vast majority of these financial institutions were 
small, as defined by the Small Business Administration as having assets 
less than $550 million.\20\ The acquired information related to 
overdraft practices (whether the financial institution offered 
overdraft and opt-in, its policies for making overdraft and balance-
related decisions, transaction processing methods, and overdraft and 
NSF fees charged) and consumer outcomes (share of accounts opted-in, 
overdraft and NSF fee revenue per account, and distribution of fees 
across accounts).
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    \20\ ``A financial institution's assets are determined by 
averaging the assets reported on its four quarterly financial 
statements for the preceding year.'' 13 CFR 121.201. Assets for the 
purposes of this size standard means the assets defined according to 
the Federal Financial Institutions Examination Council 041 call 
report form for NAICS Codes 522110, 522120, 522190, and 522210 and 
the National Credit Union Administration 5300 call report form for 
NAICS code 522130.
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iv. Previous Input to the Bureau
    In February 2012, the Bureau published a request for information, 
seeking input from the public on the impact of overdraft programs on 
consumers, including information on the impact of the Overdraft 
Rule.\21\ The Bureau received more than one thousand comments from 
trade groups, financial institutions, consumer advocates, individual 
consumers, and others.
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    \21\ 77 FR 12031 (Feb. 28, 2012).
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    In August 2017, the Bureau announced that it had conducted consumer 
testing on potential updates and improvements to the Model Form A-9 
promulgated by the Board. The Bureau released four alternative versions 
of a revised opt-in model form

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and invited feedback on these alternatives, while noting that the 
current Model Form A-9 remains effective under Regulation E.\22\ The 
Bureau received more than forty comments in response to the release.
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    \22\ https://www.consumerfinance.gov/about-us/blog/know-you-owe-we-are-designing-new-overdraft-disclosure-forms/.
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    In response to the Bureau's 2018 Call for Evidence Initiative, 
which included requesting input on all inherited regulations and 
rulemaking authorities, the Bureau received approximately ten comments 
that included information about checking account overdrafts 
generally.\23\ These comments came from trade groups, financial 
institutions, and consumer advocates. The comments addressed a wide 
variety of topics including the overall cost of overdraft, the 
treatment of overdrafts under the Truth in Lending Act, and potential 
modifications to the current Model Form A-9.
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    \23\ 83 FR 12881 (March 26, 2018).
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    Through these and other outreach efforts, the Bureau has heard 
concerns expressed by some financial institutions and trade groups 
regarding the requirements that the opt-in notice be substantially 
similar to Model Form A-9 and that the notice may not contain any 
information not specified in or otherwise permitted by the regulation. 
Some of these financial institutions have expressed a desire to add 
additional information to the notice that they believe may be relevant 
to the consumer's decision, such as an institution's policies for 
making overdraft and balance-related calculations.
    Finally, the Bureau's experience suggests there is little overlap, 
duplication, or conflict between the Overdraft Rule and Federal, State, 
or other rules. The Bureau has not received any requests for a 
determination that the Overdraft Rule preempts State law. In October 
2015, the Department of Education also issued a final rule that 
generally prohibits overdraft fees on students' checking accounts if 
the financial institution offering the account partners with an entity 
that handles the school's financial aid disbursement process.\24\
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    \24\ See 34 CFR 668.164.
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II. Request for Comment

    Consistent with the review plan, the Bureau asks the public to 
comment on the Overdraft Rule, including the following topics:
    (1) The nature and extent of the economic impacts of the Rule as a 
whole and of its major components on small entities, including impacts 
of the reporting, recordkeeping, and other compliance requirements of 
the Overdraft Rule, as well as benefits of the Rule.
    (2) Whether and how the Bureau by rule could reduce the costs of 
the Overdraft Rule on small entities, consistent with the stated 
objectives of EFTA and the Overdraft Rule.
    (3) Any other information relevant to the factors that the Bureau 
considers in completing a Section 610 Review under the Regulatory 
Flexibility Act, as described above.
    Where possible, please submit detailed comments, data, and other 
information to support any submitted positions.

    Dated: May 6, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-09812 Filed 5-14-19; 8:45 am]
 BILLING CODE 4810-AM-P