ABA, Financial Trades and Banks File Lawsuit Against CFPB's Overdraft Final Rule

MISSISSIPPI BANKERS ASSOCIATION,
409 W. Parkway Pl.,
Ridgeland, MS 39157

CONSUMER BANKERS ASSOCIATION,
1225 New York Ave., NW, Suite 1100
Washington, D.C. 20005

AMERICAN BANKERS ASSOCIATION
1333 New Hampshire Ave. NW,
Washington, DC 20036

AMERICA’S CREDIT UNIONS
4703 Madison Yards Way, Suite 300
Madison, WI 53705

ARVEST BANK
75 North East Street
Fayetteville, AR 72701

BANK OF FRANKLIN
9 Main Street
Meadville, MS 39653

THE COMMERCIAL BANK
P.O. Box 217
175 Hopper Avenue
DeKalb, MS 39328

Plaintiffs,

v.

CONSUMER FINANCIAL PROTECTION
BUREAU and ROHIT CHOPRA in his
official capacity as Director of the CFPB,

1700 G. St. NW, Washington, DC 20552

Defendants.

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COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Plaintiffs Mississippi Bankers Association, Consumer Bankers Association, American Bankers Association, America’s Credit Unions, on behalf of their members, as well as Arvest Bank, Bank of Franklin, and The Commercial Bank, by and through their undersigned counsel, allege as follows:

INTRODUCTION

1. This lawsuit challenges the Consumer Financial Protection Bureau’s (“CFPB”) Final Rule titled Overdraft Lending: Very Large Financial Institutions (“Final Rule”). The Final Rule purports to rely primarily on the Truth in Lending Act (“TILA”), a statute regarding disclosure obligations for credit products, to impose an expansive and complex new regulatory regime on overdraft services offered by large financial institutions, replete with de facto price caps and significant restrictions on the terms under which the services can be offered. But TILA in no way supports the Final Rule. Most fundamentally, overdraft services are not “credit,” as customers do not have a right to incur overdrafts or defer repayment of the overdraft; as such, they cannot be regulated under TILA. Moreover, the CFPB far exceeds the disclosure-related scope of TILA by imposing price caps and significant substantive restrictions on the terms under which these services can be offered.

2. For decades, banks, credit unions, and other financial institutions—large and small—have offered overdraft services to their customers. Financial institutions retain discretion to pay or decline items that would overdraw a customer’s account in exchange for a fee disclosed in the customer’s account agreement. Such agreements do not require financial institutions to cover overdrafts or give customers the right to defer payment of overdraft amounts.

3. Discretionary overdraft services provide a significant benefit when consumers overdraw their accounts. For consumers who may have no or limited access to credit, the service can provide a financial lifeline. Discretionary overdraft programs may allow these consumers to complete essential financial transactions, and thereby buy food at the grocery store, put gas in their car to get to work, or pay their rent, utilities, or car payments when they have a shortfall of funds. As set forth in more detail below, surveys confirm that consumers understand they will be charged a fee if they overdraft and appreciate the option to do so; consumers who have difficulty accessing credit in particular view overdrafting as the best alternative for them and worth the fee. Absent such programs, these consumers would be forced to turn to expensive non-financial institution alternatives, such as payday loans or loan sharks, or incur costlier late fees and suffer more severe consequences like a decreased credit score, missing work, repossession, or eviction.

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Overdraft Protection

ABA, Financial Trades and Banks File Lawsuit Against CFPB's Overdraft Final Rule

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