This news is only real estate adjacent, but it should be of interest to all of us who represent consumer clients who attempt to qualify for loans.

The Consumer Financial Protection Bureau issued a press release on January 17 proposing to rein in excessive overdraft fees charged by large financial institutions. The agency estimates this rule change would save consumers $3.5 billion or more per year.

You can read the press release here. The press release includes relevant attachments that include the rule, a fact sheet and other documents that should provide the information you need on this topic.

The Truth in Lending Act, enacted in 1968, generally requires lending institutions to disclose the cost of credit to consumer borrowers. But the Federal Reserve Board created an exemption for banks honoring checks when their depositor “inadvertently” overdrew their account.

Originally, overdrafts were infrequent, and overdraft fees were modest. In the 1990s and 2000s, with the rise of debit cards, large banks began raising fees and using the exemption to generate overdraft loans, creating quite the income stream.

The proposed rule would require large financial institutions to treat overdraft loans like credit cards, with all the related disclosure requirements. Alternatively, banks may charge a small fee in line with their costs. The CFPB suggests these fees may be as low as $3.

According to the press release, the agency took action in 2022 against three of the largest financial institutions to curb these fees. As a result, many banks began to voluntarily revise their overdraft policies. This proposed rule is a continuation of the agency’s efforts to control junk fees.

The CFPB is accepting comments on the proposed rule through April 1.