13852 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

1When amending commentary, the Office of the 

Federal Register (OFR) requires reprinting of certain 

subsections being amended in their entirety rather 

than providing more targeted amendatory 

instructions. The sections of regulatory text and 

commentary included in this document show the 

language of those sections if the Bureau adopts its 

changes as proposed. In addition, the Bureau is 

releasing an unofficial, informal redline to assist 

industry and other stakeholders in reviewing the 

changes that it proposes to make to the regulatory 

text and commentary of Regulation E and 

Regulation Z. This redline may be found on the 

Bureau’s website, https://

files.consumerfinance.gov/f/documents/cfpb_

unofficial-redline_overdraft-credit-very-largefinancial-institutions-proposed-rule_2024-01.pdf. If 

any conflicts exist between the redline and the text 

of Regulation E or Regulation Z, its commentary, or 

this proposed rule, the documents published in the 

Federal Register are the controlling documents. 

2Consumer credit is also subject to Regulation Z 

in other circumstances. See, e.g., 12 CFR 1026.1(c). 

3 34 FR 2002 (Feb. 11, 1969). 

4 46 FR 20848, 20855 (Apr. 7, 1981). 

CONSUMER FINANCIAL PROTECTION 

BUREAU 

12 CFR Parts 1005 and 1026 

[Docket No. CFPB–2024–0002] 

RIN 3170–AA42 

Overdraft Lending: Very Large 

Financial Institutions 

AGENCY: Consumer Financial Protection 

Bureau. 

ACTION: Proposed rule; request for 

public comment. 

SUMMARY: The Consumer Financial 

Protection Bureau (CFPB) proposes to 

amend Regulations E and Z to update 

regulatory exceptions for overdraft 

credit provided by very large financial 

institutions, thereby ensuring that 

extensions of overdraft credit adhere to 

consumer protections required of 

similarly situated products, unless the 

overdraft fee is a small amount that only 

recovers applicable costs and losses. 

The proposal would allow consumers to 

better comparison shop across credit 

products and provide substantive 

protections that apply to other 

consumer credit. 

DATES: Comments must be received on 

or before April 1, 2024. 

ADDRESSES: You may submit comments, 

identified by Docket No. CFPB–2024– 

0002 or RIN 3170–AA42, by any of the 

following methods: 

• Federal eRulemaking Portal: 

https://www.regulations.gov. Follow the 

instructions for submitting comments. A 

brief summary of this document will be 

available at https://

www.regulations.gov/docket/CFPB2024-0002. 

• Email: 2024-NPRM-OVERDRAFT@

cfpb.gov. Include Docket No. CFPB– 

2024–0002 or RIN 3170–AA42 in the 

subject line of the message. 

• Mail/Hand Delivery/Courier: 

Comment Intake—2024 NPRM 

Overdraft, c/o Legal Division Docket 

Manager, Consumer Financial 

Protection Bureau, 1700 G Street NW, 

Washington, DC 20552. 

Instructions: The CFPB encourages 

the early submission of comments. All 

submissions should include the agency 

name and docket number or Regulatory 

Information Number (RIN) for this 

rulemaking. Commenters are 

encouraged to submit comments 

electronically. In general, all comments 

received will be posted without change 

to https://www.regulations.gov. 

All submissions, 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: 

Anna Boadwee, Attorney-Advisor; 

Joseph Baressi, Pedro De Oliveira, 

Thomas Dowell, Brandy Hood, Kristin 

McPartland, or Mark Morelli, Senior 

Counsels, Office of Regulations, at 202– 

435–7700 or https://

reginquiries.consumerfinance.gov/. If 

you require this document in an 

alternative electronic format, please 

contact CFPB_Accessibility@cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of Proposed Rule 

II. Background 

A. Overview of Overdraft Credit 

B. Evolution and Growth of Non-Covered 

Overdraft 

C. Non-Covered Overdraft Credit Today 

D. Consumer Impact of Overdraft Fees 

E. Growing Regulatory Concerns About 

Non-Covered Overdraft Credit 

F. Need for CFPB Action 

III. Outreach and Related Research 

IV. Legal Authority 

A. Truth in Lending Act 

B. Electronic Fund Transfer Act 

C. Consumer Financial Protection Act 

V. Discussion of the Proposed Rule 

A. Who is covered? (§ 1026.62(b)(8)) 

B. What transactions and accounts are 

covered? 

C. Changes to the Definition of ‘‘Finance 

Charge’’ (§ 1026.4(b)(2), (b)(12), and 

(c)(3); § 1026.62(d)) 

D. Changes to Covered Overdraft Credit 

Offered by Very Large Financial 

Institutions 

VI. Proposed Effective Date 

VII. Severability 

VIII. CFPA Section 1022(b) Analysis 

A. Overview 

B. Data Limitations and Quantification of 

Benefits, Costs, and Impacts 

C. Baseline for Analysis 

D. Potential Benefits and Costs to 

Consumers and Covered Persons of the 

Proposed Changes That Affect Charges 

for Non-Covered and Covered Overdraft 

Credit 

E. Potential Benefits and Costs to 

Consumers and Covered Persons of 

Further Provisions of the Proposed Rule 

F. Potential Specific Impacts of the 

Proposed Rule on Depository Institutions 

and Credit Unions With $10 Billion or 

Less in Total Assets, as Described in 

CFPA Section 1026 

G. Potential Specific Impacts of the 

Proposed Rule on Consumer Access to 

Credit and on Consumers in Rural Areas 

IX. Regulatory Flexibility Act Analysis 

X. Paperwork Reduction Act 

I. Summary of Proposed Rule 

Overview 

This proposed rule would update 

non-statutory exceptions in Regulations 

Z and E that have allowed very large 

financial institutions to avoid statutory 

requirements when extending certain 

overdraft credit.1

Consumer credit is subject to 

Regulation Z if the creditor imposes a 

finance charge, which generally 

includes any charge payable directly or 

indirectly by the consumer and imposed 

directly or indirectly by the creditor as 

an incident to or a condition of the 

extension of credit.2 However, when the 

Board of Governors of the Federal 

Reserve System (Board) first adopted 

Regulation Z in 1969,3 it excepted from 

Regulation Z’s definition of finance 

charge any charges for honoring checks 

that overdraw a checking account unless 

the payment of the check and 

imposition of the fee were previously 

agreed upon in writing. The Board 

subsequently made ‘‘minor editorial 

changes’’ to this exception, e.g., to 

reflect ‘‘items that are similar to checks, 

such as negotiable orders of 

withdrawal.’’ 4 This exception is unique 

to credit extended to pay account 

overdrafts. In adopting this exception, 

the Board did not rely on an 

interpretation of the statute; rather, the 

Board used its authority to create 

regulatory exceptions. Similar consumer 

credit products are subject to Regulation 

Z. 

This exception was evidently 

intended to allow banks to continue 

providing limited overdraft services, as 

a courtesy to consumers who 

inadvertently overdrew their account, 

without the banks complying with 

Regulation Z. In the early years of the 

regulation, decisions to pay an item that 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13853 

5 In 1987, Congress enacted the Expedited Funds 

Availability Act (12 U.S.C. 4001 et seq.) to provide 

depositors of checks with prompt funds availability 

and to foster improvements in the check collection 

and return processes. See 82 FR 27552, 27552 (June 

15, 2017). Section 229.2(d) of Regulation CC (12 

CFR 229), which implements that act, defines 

‘‘available for withdrawal.’’ 6 12 CFR 1026.4(c)(3). 7 12 CFR 1026.4(b)(2). 

overdraws an account instead of 

returning it unpaid were made as a 

relatively infrequent part of 

administering asset accounts. At the 

time, consumers typically withdrew 

funds from their bank accounts through 

in-person withdrawals or by writing 

checks. If a consumer mistimed when 

funds from a check deposit would be 

available for withdrawal 5 and 

inadvertently overdrew their account 

and the overdrawing check were 

returned unpaid, the bank would 

typically charge the consumer a 

nonsufficient funds (NSF) fee and the 

consumer could be subject to additional 

fees imposed by the payee and other 

negative consequences from bounced 

checks. If, instead of returning the 

check, the financial institution paid it 

notwithstanding the unavailable or 

insufficient funds in the account, such 

courtesy payment could provide a 

benefit to the consumer, who would 

avoid all of the negative consequences 

of a bounced check without being 

charged any additional fees beyond the 

amount charged for nonsufficient funds. 

Over the last 30 years, in conjunction 

with widespread financial institution 

adoption of information technology 

systems as well as the expansion of 

debit card transactions that can 

overdraw an account, overdraft credit 

products provided under the exception 

have morphed from an occasional 

courtesy provided to consumers into 

frequently used and promoted products 

that increase costs to consumers (in 

certain instances) and generate a 

substantial portion of the direct fee 

revenue that financial institutions make 

from checking accounts (and much of 

the total revenue that financial 

institutions make from low-balance 

accounts). The volume of overdrawing 

transactions rose drastically over the 

years, including on transactions where 

the consumer may have suffered no 

negative consequences if the transaction 

were declined. Since the CFPB focused 

substantial enforcement and supervision 

attention on overdraft fees in 2021, 

overdraft fee revenue has contracted 

somewhat. However, it is still a source 

of billions of dollars in profits every 

year, and most very large financial 

institutions continue to charge $35 

today. Financial institutions today 

generally make pay/no-pay decisions in 

advance—for example, by setting 

overdraft limits that the consumer may 

not be aware of and using information 

technology systems to make automated 

pay/no-pay decisions. They sometimes 

calibrate these systems with the goal of 

generating fee revenue. Because of these 

market changes, which increase the risk 

that a consumer will unwittingly incur 

high overdraft fees, helping consumers 

make informed decisions about 

overdraft credit has become a much 

more serious concern. 

Key Changes 

Given these changes over the past 30 

years and consistent with TILA’s 

purpose of promoting the informed use 

of credit, the CFPB is proposing to 

update several non-statutory exceptions 

in Regulation Z to extend consumer 

credit protections that generally apply 

to other forms of consumer credit to 

certain overdraft credit provided by very 

large financial institutions. These 

changes would allow consumers to 

better compare certain overdraft credit 

to other types of credit and would 

provide consumers with several 

substantive protections that already 

apply to other consumer credit. 

These amendments would apply only 

to very large financial institutions—i.e., 

insured depository institutions and 

credit unions with more than $10 

billion in assets. The proposal would 

not change the regulatory framework for 

overdraft services offered by financial 

institutions with assets of $10 billion or 

less. The CFPB plans to monitor the 

market’s response to this rule before 

determining whether to alter the 

regulatory framework for financial 

institutions with assets less than or 

equal to $10 billion. 

Under this proposal, Regulation Z 

would generally apply to overdraft 

credit provided by very large 

institutions unless it is provided at or 

below costs and losses as a true courtesy 

to consumers. The proposed rule would 

accomplish this result by updating two 

regulatory exceptions from the statutory 

definition of finance charge. First, the 

proposal would update an exception 

that currently provides that a charge for 

overdraft is not a finance charge if the 

financial institution has not previously 

agreed in writing to pay items that 

overdraw an account 6 so that the 

exception would not apply to ‘‘above 

breakeven overdraft credit’’ offered by a 

very large financial institution. The 

proposal would give financial 

institutions the ability to determine 

whether an overdraft charge is 

considered above breakeven overdraft 

credit by either: (1) calculating its own 

costs and losses using standards set 

forth in the proposal; or (2) relying on 

a benchmark fee set by the CFPB in the 

proposal. The CFPB is considering 

setting the benchmark fee at $3, $6, $7, 

or $14. Second, the proposal would 

update a related exception that provides 

that a charge imposed in connection 

with an overdraft credit feature (e.g., a 

charge for each item that results in an 

overdraft) is not a finance charge if the 

charge does not exceed the charge for a 

similar transaction account without a 

credit feature (e.g., the charge for 

returning each item).7 As a result of the 

proposed change, all transfer charges 

that very large financial institutions 

impose on asset accounts with linked 

overdraft lines of credit (i.e., fees 

imposed for transferring funds to an 

asset account from an overdraft line of 

credit to cover an item that would 

otherwise take the asset account’s 

balance negative) would be finance 

charges. 

If the proposal is finalized, above 

breakeven overdraft credit that is not 

currently subject to Regulation Z would 

become subject to Regulation Z, 

including provisions in subpart B that 

govern open-end credit (e.g., the 

account opening disclosures, periodic 

statements, and advertising rules). For 

ease of reference, this proposal generally 

refers to overdraft credit that is not 

subject to Regulation Z as non-covered 

overdraft credit and overdraft credit that 

is subject to Regulation Z as covered 

overdraft credit. Above breakeven 

overdraft credit is currently a type of 

non-covered overdraft credit, but it 

would become covered overdraft credit 

if this proposal is finalized. 

The proposal would also require 

covered overdraft credit offered by very 

large financial institutions to be put in 

a credit account separate from the asset 

account, and it would update 

exceptions relating to credit cards. 

Among other changes, it would apply 

the portions of Regulation Z that 

implement the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (CARD Act) to 

covered overdraft credit that can be 

accessed by a hybrid debit-credit card, 

such as a debit card or other single 

credit device (including certain account 

numbers) that a consumer may use from 

time to time to obtain covered overdraft 

credit from a very large financial 

institution. Provisions of the CARD Act 

that would apply to such overdraft 

credit include, but are not limited to, 

ability-to-pay underwriting 

requirements, limitations on penalty 

fees including certain fees on 


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13854 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

8 34 FR 2002 (Feb. 11, 1969). 

9 42 FR 22360, 22362 (May 3, 1977). 

10 46 FR 50288, 50293 (Oct. 9, 1981) (providing 

that a ‘‘credit card’’ does not include ‘‘[a] checkguarantee or debit card with no credit feature or 

agreement, even if the creditor occasionally honors 

an inadvertent overdraft’’); see also Regulation Z 

comment 2(a)(15)–2.ii.A. 

11Under Regulation Z, an issuer of a credit card 

can be a creditor regardless of whether the credit 

is subject to a finance charge. 12 CFR 

1026.2(a)(17)(iii); see also 12 CFR 1026.2(a)(7) 

(defining ‘‘card issuer’’). Thus, without the 1981 

exception, a financial institution that extends 

overdrafts could be a ‘‘creditor’’ for purposes of 

subpart B of TILA even with an exemption of 

overdraft fees from the finance charge. 

12Consumer Fin. Prot. Bureau (CFPB), CFPB 

Study of Overdraft Programs: A white paper of 

initial data findings, at 55 (June 2013), https://

files.consumerfinance.gov/f/201306_cfpb_

whitepaper_overdraft-practices.pdf (CFPB 2013 

White Paper) (noting 28 of a sample of 33 large 

institutions charged a transfer fee in 2012, ranging 

from $3 to $20 per transfer, with a median of $10, 

while smaller institutions charged a median of $5). 

13 Id. 

14Between December 2022 and July 2023, CFPB 

reviewed publicly available information describing 

the overdraft-related practices of very large 

financial institutions (CFPB Market Monitoring of 

Publicly Available Overdraft Practices, Dec. 2022– 

July 2023). 

15Trevor Bakker et al., CFPB, Data Point: 

Checking account overdraft, at 5, 22 (July 2014), 

https://files.consumerfinance.gov/f/201407_cfpb_

report_data-point_overdrafts.pdf (CFPB 2014 Data 

Point). 

16CFPB 2013 White Paper at 48–52. 

transactions that are declined due to 

nonsufficient funds, and various 

requirements related to rate changes. 

The proposal would also prohibit 

compulsory use of preauthorized 

electronic fund transfers (EFTs) for 

repayment of covered overdraft credit 

provided by very large financial 

institutions, which would ensure that 

consumers using those products have a 

choice of at least one alternative method 

of repayment. As a result of this change, 

covered overdraft credit offered by very 

large financial institutions could not be 

conditioned on consumers agreeing to 

automatic debits from their checking 

account. Consumers could still opt into 

automatic payments on a periodic basis 

if offered by their financial institution, 

but they would have the right to repay 

this overdraft credit manually if they 

prefer. 

The CFPB proposes that the final rule, 

if adopted, would take effect on the 

October 1 which follows by at least six 

months the date it is published in the 

Federal Register, consistent with 15 

U.S.C. 1604(d). The CFPB expects that 

would likely fall on October 1, 2025. 

The CFPB invites comment on all 

aspects of this notice of proposed 

rulemaking and on the specific issues 

on which it solicits comment elsewhere 

herein, including on any appropriate 

modifications or exceptions to the 

Proposed Rule. 

II. Background 

A. Overview of Overdraft Credit 

An overdraft occurs when consumers 

do not have a sufficient balance in their 

asset account to pay a transaction, but 

the financial institution pays the 

transaction anyway. Typically, the 

financial institution pays an overdraft 

transaction by either transferring the 

consumer’s own funds from another 

asset account held by the financial 

institution, such as a savings account, or 

by extending overdraft credit (i.e., using 

the financial institution’s own funds 

and requiring the consumer to repay). 

Currently, not all overdraft credit is 

subject to Regulation Z. For example, 

when the Board first adopted Regulation 

Z in 1969,8 it excepted from Regulation 

Z’s coverage charges for honoring 

checks that overdraw a checking 

account unless the payment of the check 

and imposition of the fee were 

previously agreed upon in writing. A 

Board official interpretation stated that 

this exception for ad hoc credit 

decisions applies only to ‘‘regular 

demand deposit accounts which carry 

no credit features and in which a bank 

may occasionally, as an accommodation 

to its customer, honor a check which 

inadvertently overdraws that account.’’ 9

The Board subsequently adopted 

commentary excluding debit cards with 

no credit agreement from Regulation Z’s 

definition of ‘‘credit card.’’ 10 While the 

Board did not explain this exception, it 

appears it was intended to exclude 

discretionary overdraft services from 

being subject to Regulation Z when they 

are accessed by a debit card, consistent 

with the exclusion for overdraft charges 

from the definition of finance charge.11

Some overdraft credit is previously 

agreed upon in writing and is currently 

covered by Regulation Z. Such covered 

overdraft credit enables consumers to 

link a checking account to a credit 

account, like an overdraft line of credit 

or a credit card, from which funds are 

transferred automatically to pay 

transactions when the checking account 

balance is insufficient to pay them. 

Some financial institutions charge a fee, 

often referred to as an overdraft 

protection transfer fee, for these 

transfers.12 Financial institutions may 

assess such a fee once per day that a 

transfer is made, once to transfer a 

round dollar value increment (e.g., a fee 

for $100 transferred to cover any 

overdraft(s) less than $100), or, less 

commonly, once per overdraft 

transaction; 13 however, since late 2021, 

a number of financial institutions have 

voluntarily eliminated such fees.14

Credit accounts used to cover overdrafts 

also carry an interest rate applied to the 

outstanding balance. Repayment of the 

overdrawn amount and interest is 

typically made periodically according to 

a payment schedule. The ability to 

obtain and use covered overdraft credit 

is typically limited to consumers whose 

credit history allows them to qualify for 

an overdraft line of credit or who have 

available credit on a credit card. 

Financial institutions may also pay 

overdrafts through currently noncovered overdraft credit, where the 

financial institution typically pays 

overdrafts up to certain limits but does 

not agree in advance to pay the 

overdrawn transactions, reserving 

discretion to decline any given overdraft 

transaction. This type of overdraft credit 

is currently non-covered overdraft credit 

because it is currently not subject to 

Regulation Z. This proposal may also 

refer to currently non-covered overdraft 

credit as an overdraft service, overdraft 

services, or an overdraft program. With 

certain exceptions provided for by 

internal policies, the financial 

institution typically assesses a flat fee 

for each overdraft transaction the 

financial institution pays. In addition, 

some financial institutions charge an 

additional fee or fees, known as 

extended or sustained overdraft fees, if 

the consumer does not bring the account 

back to a positive balance within a 

specified period. To collect repayment 

of the funds advanced to cover overdraft 

transactions as well as payment of the 

fees assessed, the financial institution 

typically deducts those amounts as a 

lump sum from the consumer’s next 

incoming deposit(s), usually within 

three days after the account became 

overdrawn.15

Financial institutions typically 

provide non-covered overdraft credit for 

certain transaction types—primarily 

checks, automated clearinghouse (ACH) 

transactions, and recurring debit card 

transactions—as a default, up to certain 

coverage limits. For one-time (nonrecurring) debit card and ATM 

transactions, financial institutions may 

not assess overdraft fees for paying such 

transactions without first obtaining the 

consumer’s opt-in following the process 

required by Regulation E 12 CFR 

1005.17(b). 

Financial institutions employ a 

number of different practices and 

policies when making pay/return 

decisions in connection with noncovered overdraft.16 While, as noted 

above, overdraft credit must technically 

be discretionary to be excepted from 

Regulation Z, in practice, financial 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13855 

17Common account and account holder 

characteristics include account tenure, average 

balance, overdraft history, and deposit patterns, as 

well as other relationships the accountholder may 

have with the institution. 

18See Consumers Guide to Banking: Staff Report 

on Commercial Bank Charges in the New York and 

Washington, DC Metropolitan Area, S. Comm. on 

Banking, Hous. and Urban Affairs, 94th Cong. 10– 

11 tbl.3 (1976) (Senate Staff Report); see also 70 FR 

8428, 8429 (Feb. 18, 2005) (‘‘Regardless of whether 

the overdraft is paid, institutions typically charge 

the NSF fee when an overdraft occurs.’’); 74 FR 

59033, 59035 (Nov. 17, 2009) (‘‘Second, a consumer 

will generally be charged the same fee by the 

financial institution whether or not a check is paid; 

yet if the institution covers an overdrawn check, the 

consumer may avoid other adverse consequences, 

such as the imposition of additional merchant fees); 

Fed. Deposit Ins. Corp. (FDIC), 2008 FDIC Study of 

Bank Overdraft Programs, at 16 n.18 (Nov. 2008), 

https://www.fdic.gov/bank/analytical/overdraft/ 

FDIC138_Report_Final_v508.pdf (FDIC 2008 Study) 

(‘‘For most of the survey population operating 

automated programs, the per-item fee charged when 

items were paid under automated overdraft 

programs was the same as the fee charged by the 

bank on NSF items that it did not pay. These two 

fees were equal to each other for 98.1 percent of 451 

institutions reporting the two fee items.’’). 

19See 42 FR 22360, 22362 (May 3, 1977) 

(describing the exception from Regulation Z as 

applying when overdraft is provided ‘‘as an 

accommodation . . . honoring a check which 

inadvertently overdraws that account.’’); see also 

Federal Reserve Board Staff Opinion Letter No. 948 

(Nov. 17, 1975) (explaining that the exception 

‘‘relates only to regular demand deposit accounts 

which carry no credit feature and in which a bank 

may occasionally, as an accommodation to its 

customer, honor a check which inadvertently 

overdraws that account’’). 

20See 74 FR 59033, 59033 n.1 (Nov. 17, 2009) 

(citing FDIC’s Study of Bank Overdraft Programs 

(Nov. 2008), which found that nearly 70 percent of 

banks surveyed implemented their automated 

overdraft program after 2001). 

21See id. at 59035; see also id. at 59034 n.6 (citing 

Overdraft Protection: Fair Practices for Consumers: 

Hearing before the House Subcomm. On Financial 

Institutions and Consumer Credit, House Comm. On 

Financial Services, 110th Cong., at 72 (2007)) 

(‘‘noting that as recently as 2004, 80 percent of 

banks still declined ATM and debit card 

transactions without charging a fee when account 

holders did not have sufficient funds in their 

account.’’). 

22Federal Reserve Payments Studies from 2004 to 

2013 (exhibit 1 in each study) show that from 2000 

to 2012, annual debit card transactions increased 

from 8.3 billion to 47 billion, while annual check 

transactions decreased from 41.9 billion to billion 

to 18.3 billion. By 2008, debit card transactions 

exceeded the number of checks. See Bd. of 

Governors of the Fed. Rsrv. Sys. (FRS), Federal 

Reserve Payments Study (FRPS)—Previous Studies, 

https://www.federalreserve.gov/paymentsystems/ 

frps_previous.htm (last updated Apr. 21, 2023); see 

also FRS, The 2013 Federal Reserve Payments 

Study, at 9 ex.2 (Dec. 2013), https://

www.frbservices.org/binaries/content/assets/ 

crsocms/news/research/2013-fed-res-paymt-studysummary-rpt.pdf (showing the average debit card 

transaction ranged from $37 to $40 from 2003–2012, 

while the average check transaction ranged from 

$1,103 to $1,410). The CFPB has found that the 

median transaction amount that leads to an 

overdraft fee in the case of debit card transactions 

is $24, while the median check and ACH 

transactions that lead to overdraft fees are $100 and 

$90, respectively. See CFPB 2014 Data Point at 5; 

see also Fin. Health Network (FHN), Overdraft 

Trends Amid Historic Policy Shifts (June 1, 2023), 

https://finhealthnetwork.org/research/overdrafttrends-amid-historic-policy-shifts/ (FHN Brief 2023) 

(finding almost half (45 percent) of overdrafters 

reported that their most recent overdraft occurred 

on a transaction of $50 or less). 

23Senate Staff Report at 10–11. 

24See Bank Fees Associated with Maintaining 

Depository, Checking, and Credit Card Accounts, 

Hearing Before the Subcomm. on Consumer Credit 

and Ins., Comm. on Banking, Finance and Urban 

Affairs, 103rd Cong. 73 tbl.3 (1993) (Testimony by 

Susan M. Phillips, Member, Bd. of Governors of the 

Fed. Rsrv. Sys.) (showing average overdraft fee of 

over $15 in 1993); see also id. at 95–96, 101–02 

(Statement of Chris Lewis, Dir. of Banking and 

Hous. Pol’y, Consumer Fed’n of Am.) (noting 

concerns about the rise in the size of ‘‘bounced 

check fees’’, a term the organization used to 

describe the fee assessed when funds were 

insufficient, whether the transaction was returned 

unpaid or paid into overdraft). 

25 Gov’t Accountability Off., Bank Fees: Federal 

Banking Regulators Could Better Ensure That 

Consumers Have Required Disclosure Documents 

Prior to Opening Checking or Savings Accounts, at 

14 (Jan. 2008), https://www.gao.gov/assets/gao-08- 

281.pdf; see also FDIC 2008 Study (by 2007, among 

primarily financial institutions with less than $5 

billion in assets, the average fee was $27); CFPB 

2013 White Paper at 52 (by 2012, among the 

nation’s largest financial institutions, the average 

fee was $34). 

26CFPB 2013 White Paper at 16–17. 

institutions typically assign each 

account an overdraft coverage limit 

representing the maximum amount of 

overdraft coverage the financial 

institution will extend on the account. 

Once an account reaches its overdraft 

coverage limit, the financial institution 

will no longer pay transactions into 

overdraft and will return those 

transactions unpaid. Overdraft coverage 

limits may be static (i.e., the financial 

institution assigns an unchanging limit 

to each customer) or dynamic (i.e., the 

financial institution changes the limit 

for each account periodically based on 

account usage patterns, market 

conditions, or account and 

accountholder characteristics in an 

attempt to manage more precisely credit 

risk, overdraft program revenues, and 

customer retention).17 Financial 

institutions that use static limits may 

communicate those limits to account 

holders, while financial institutions that 

use dynamic limits generally do not 

communicate those limits to account 

holders. 

Historically, financial institutions 

have charged an NSF fee when they 

reject, rather than pay, transactions 

initiated by check or ACH or other 

electronic payments; in contrast, 

financial institutions have rarely if ever 

charged an NSF fee when declining a 

one-time debit card purchase or an ATM 

withdrawal. Financial institutions 

typically have charged the same amount 

for an NSF fee as for a non-covered 

overdraft fee.18 As noted in part II.C, 

many financial institutions have 

eliminated NSF fees over the past two 

years. 

B. Evolution and Growth of NonCovered Overdraft 

Non-covered overdraft credit started 

as a courtesy that financial institutions 

provided when they would decide on a 

manual, ad hoc basis to pay particular 

check transactions into overdraft rather 

than returning those checks unpaid.19

This courtesy would help consumers 

avoid NSF fees, merchant fees, and 

other negative consequences from 

bounced checks. Over time, noncovered overdraft credit began to move 

away from that historical model, as 

financial institutions shifted to a system 

involving heavy reliance on automated 

programs to process transactions and to 

make overdraft decisions.20 Financial 

institutions also began to extend 

overdraft credit to debit card 

transactions, even though a declined 

debit card transaction did not pose the 

same risk to consumers of an NSF fee, 

a merchant fee, or certain other 

consequences associated with a 

bounced check.21 Over time, debit card 

transactions became more numerous 

than checks, increasing the number of 

transactions that could generate 

overdrafts, with typical debit card 

transactions involving smaller amounts 

than typical check transactions.22 Even 

as transaction processing and overdraft 

decisioning became more automated 

and overdraft transactions increased in 

frequency and decreased in size, 

financial institutions increased the size 

of overdraft fees. In 1976, when the 

process was typically manual and 

included only checks, one survey of 

banks in Washington, DC, and New 

York found that the median fee was $5, 

while some banks charged zero.23 By 

1994, concern had risen about the 

increase in the average fee to over $15 

($5.77 in 1976 dollars); 24 by 2000, the 

average had surpassed $20 ($6.61 in 

1976 dollars) and continued to increase 

thereafter.25

As a result of these market shifts and 

operational changes, fee revenue from 

non-covered overdraft credit began to 

significantly influence the overall 

business model for many asset accounts. 

Financial institutions became less likely 

to charge consumers upfront monthly 

checking account fees, which 

consumers could more easily compare 

across the market, and instead began to 

rely heavily overdraft fees.26 In essence, 

the provision of non-covered overdraft 

credit moved away from its original 

purpose—paying occasional or 

inadvertent overdrafts as a courtesy— 

and became the dominant component of 


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27CFPB’s estimates of marketwide overdraft 

revenue, before banks with over $1 billion in assets 

began reporting overdraft/NSF revenue on call 

reports in 2015, are based on the esitmated share 

of aggregated fee revenue that banks and credit 

unions reported on call reports that was attributable 

to overdraft fees. For more details on methodology, 

see Jacqueline Duby et al., Ctr. for Responsible 

Lending (CRL), High Cost & Hidden From View: The 

$10 Billion Overdraft Loan Market (May 26, 2005), 

https://www.responsiblelending.org/sites/default/ 

files/nodes/files/research-publication/ip009-High_

Cost_Overdraft-0505.pdf; see also Leslie Parrish, 

CRL, Overdraft Explosion: Bank fees for overdrafts 

increase 35% in two years, at 4 (Oct. 6, 2009), 

https://www.responsiblelending.org/researchpublication/overdraft-explosion-bank-feesoverdrafts-increase-35-two-years. 

28 Id. 

29CFPB’s estimates of marketwide overdraft 

revenue for 2015 to 2022 extrapolate total overdraft/ 

NSF revenue reported on call reports by banks with 

over $1 billion in assets to banks with less than $1 

billion in assets and to credit unions in order to 

reach a total marketwide estimate of overdraft/NSF 

revenue, and then estimate the portion of that 

combined overdraft/NSF revenue that is attributable 

to overdraft revenue alone. To extrapolate reported 

overdraft/NSF revenue to banks with less than $1 

billion in assets and to credit unions, the CFPB uses 

data collected from core processors for the number 

of accounts by asset size and the overdraft/NSF 

revenue per account, and from 2014 call report data 

for distribution of institutions by asset size, and 

then assumes that overdraft/NSF revenue at small 

institutions saw the same growth from 2014 to 2019 

as at large banks to arrive at the 2019 estimate. 

These extrapolations result in estimates where 

banks with over $1 billion in assets comprise 77.4 

percent of marketwide overdraft/NSF revenue, 

banks with less than $1 billion in assets comprise 

7.3 percent of such revenue, and credit unions 

comprise 15.3 percent of such revenue. See E

 ́ va 

Nagypa ́l, Ph.D., CFPB, Data Point: Overdraft/NSF 

Fee Reliance Since 2015—Evidence from Bank Call 

Reports, at 7 (Dec. 2021), https://

files.consumerfinance.gov/f/documents/cfpb_

overdraft-call_report_2021-12.pdf (CFPB 2021 Data 

Point). For the 2022 estimate, the CFPB assumes 

that banks with assets over $1 billion, banks with 

assets below $1 billion, and all credit unions 

represent the same relative portions of total 

marketwide overdraft/NSF revenue in 2022 as they 

did in 2019. 

30CFPB 2021 Data Point at 22–24. 

31See Press Release, FRS, FDIC & Off. of the 

Comptroller of the Currency (OCC), Joint Statement 

on CRA Consideration for Activities in Response to 

COVID–19 (Mar. 19, 2020), https://www.occ.gov/ 

news-issuances/bulletins/2020/bulletin-2020- 

19a.pdf; Press Release, CFPB, Consumer Financial 

Protection Bureau Encourages Financial Institutions 

and Debt Collectors to Allow Stimulus Payments to 

Reach Consumers (Mar. 17, 2021), https://

www.consumerfinance.gov/about-us/newsroom/ 

consumer-financial-protection-bureau-encouragesfinancial-institutions-and-debt-collectors-to-allowstimulus-payments-to-reach-consumers/; see also, 

e.g., State of Cal. Bus., Consumer Servs. & Hous. 

Agency, Guidance to Financial Institutions During 

the COVID–19 Pandemic (Mar. 22, 2020), https://

www.bcsh.ca.gov/coronavirus19/dbo_banks.pdf; 

Press Release, N.Y. State Dep’t of Fin. Servs., DFS 

Issues New Emergency Regulation Requiring New 

York Regulated Financial Institutions To Provide 

Financial Relief To New Yorkers Demonstrating 

Financial Hardship From COVID–19 Pandemic 

(Mar. 24, 2020), https://www.dfs.ny.gov/reports_

and_publications/press_releases/pr202003241. 

32See discussion of methodology at FN 29. 

33Rebecca Borne ́ & Amy Zirkle, Comparing 

overdraft fees and policies across banks, CFPB (Feb. 

10, 2022), https://www.consumerfinance.gov/aboutus/blog/comparing-overdraft-fees-and-policiesacross-banks/. 

34 Id. 

35 Id. 

36 Id. 

37CFPB, Data Spotlight: Overdraft/NSF revenue 

down nearly 50% versus pre-pandemic levels (May 

24, 2023), https://www.consumerfinance.gov/dataresearch/research-reports/data-spotlight-overdraftnsf-revenue-in-q4-2022-down-nearly-50-versus-prepandemic-levels/full-report/ (CFPB May 2023 Data 

Spotlight). 

38See discussion of methodology at FN 29. 

39Estimated using data from 2022 Federal 

Financial Institutions Examination Council (FFIEC) 

Call Reports and methodology discussed at FN 29. 

40CFPB, Data spotlight: Vast majority of NSF fees 

have been eliminated, saving consumers nearly $2 

billion annually (Oct. 11, 2023), https://

www.consumerfinance.gov/data-research/researchreports/vast-majority-of-nsf-fees-have-beeneliminated-saving-consumers-nearly-2-billionannually/ (CFPB October 2023 Data Spotlight) 

(finding that nearly two-thirds of banks with over 

$10 billion in assets have eliminated NSF fees). 

41CFPB Market Monitoring of Publicly Available 

Overdraft Practices, Dec. 2022–July 2023. 

42CFPB 2013 White Paper at 17. 

43 Id. 

44 Id. 

a back-end pricing business model. By 

2004, marketwide overdraft revenue was 

estimated at approximately $10 billion 

and, by 2009, had increased to an 

estimated $25 billion.27

C. Non-Covered Overdraft Credit Today 

Marketwide overdraft revenue 

declined following the 2010 

implementation of the Board’s ‘‘opt-in’’ 

rule under Regulation E to an estimated 

$12 billion in 2011 before beginning to 

increase again.28 In the several years 

preceding the COVID–19 pandemic, 

marketwide overdraft revenue was 

persistent, climbing from an estimated 

$11.8 billion in 2015 to $12.6 billion in 

2019.29 With the onset of the pandemic 

in March 2020, overdraft revenue 

dropped significantly. The drop was 

likely primarily due to pandemicrelated stimulus payments pushing up 

average checking account balances, as 

well as temporarily decreased use of 

debit cards.30 In addition, Federal 

regulators encouraged, and some State 

regulators encouraged or mandated, 

financial institutions to offer leniency 

around imposition of overdraft fees in 

light of the pandemic.31

Notwithstanding the trend downward 

during the pandemic, estimated 

marketwide overdraft revenue exceeded 

$9 billion in 2020 and 2021.32

Beginning in late 2021, a number of 

large banks began announcing and 

implementing changes to their overdraft 

policies.33 Some banks eliminated 

overdraft fees altogether or reduced 

them to $10 or $15 per transaction.34

Some banks made changes to their 

policies by expanding their fee waiver 

policies, including establishing a daily 

limit of one fee per day; 35 establishing 

de minimis negative balance thresholds, 

within which overdrafts do not result in 

a fee of $50 or more; and implementing 

grace periods giving consumers time 

through the next business day to bring 

their accounts positive before a fee is 

assessed.36 Collectively these changes 

resulted in a sustained reduction in 

overdraft revenues as compared to prepandemic levels.37 Marketwide 

overdraft revenue in 2022 was an 

estimated $9.1 billion ($7.9 billion in 

2019 dollars, a 37 percent drop in real 

terms).38 Of that, an estimated $6.16 

billion, or 68 percent, was earned by 

financial institutions with above $10 

billion in assets.39 At the same time, 

most very large financial institutions 

eliminated NSF fees.40

Despite these changes, the vast 

majority of banks and credit unions 

with over $10 billion in assets continue 

to charge between $30 and $37 per 

overdraft fee, and more than half charge 

$35.41 Most financial institutions’ 

policies allow consumers to incur 

multiple overdraft fees per day. 

Financial institutions continue charging 

these high fees even though the fees far 

exceed institutions’ costs and losses 

associated with providing non-covered 

overdraft credit. CFPB data collections 

and outreach have found that the single 

largest cost or loss to financial 

institutions associated with overdraft 

programs is charged-off account 

balances, which most frequently occur 

when a consumer’s subsequent deposits 

do not cover the negative balance 

created by the overdraft(s) and 

associated fee(s).42 The CFPB’s study of 

2011 bank data found that charge-offs 

were small relative to the fee revenue 

banks earned through their overdraft 

programs.43 Among those banks, 

charged-off principal account balances 

due to overdraft programs represented 

14.4 percent of the net overdraft fees 

(not including NSF fees) at those 

banks.44 During the first half of 2023, 

the CFPB collected additional data from 

several banks, which again showed that 

charge-offs associated with negative 

account balances were the largest cost or 

loss associated with providing overdraft. 

As discussed further in part V.C.2, 

charge-offs amounted to an average of 

$2 per overdraft transaction whether or 

not such transaction incurred an 

overdraft fee, and an average of $5 per 

overdraft transaction that incurred an 

overdraft fee—representing 6 percent 

and 15 percent, respectively, of the 

average fee of $32.50 charged by the 

banks during the period studied. 


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45 David Low et al., CFPB, Data Point: Frequent 

Overdrafters, at 5 (Aug. 2017), https://

files.consumerfinance.gov/f/documents/201708_

cfpb_data-point_frequent-overdrafters.pdf (CFPB 

2017 Data Point); CFPB 2014 Data Point at 12 (both 

analyzing 2011–2012 data). 

46CFPB 2017 Data Point at 5. 

47CFPB 2013 White Paper at 25. 

48FDIC, 2021 FDIC National Survey of Unbanked 

and Underbanked Households, at 1, https://

www.fdic.gov/analysis/household-survey/ 

2021report.pdf (last updated July 24, 2023). 

49 Id. at 17 tbl.3.3 (48.8 percent of unbanked 

households previously had a bank account). 

50 Id. at 18 fig.3.4 (49.4 percent of previously 

banked households are not at all interested in 

having a bank account, and 18.3 percent are not 

very interested). 

51FDIC, 2021 FDIC National Survey of Unbanked 

and Underbanked Households—Appendix Tables, 

at 11 tbl.A.6, https://www.fdic.gov/analysis/ 

household-survey/2021appendix.pdf (last updated 

July 24, 2023) (FDIC Tables) (among previously 

banked households, 30.5 percent cited bank 

account fees are too high, 28.8 percent cited bank 

account fees are too unpredictable, and 43 percent 

cited that they do not have enough money to meet 

minimum balance requirements). 52See Press Release, CFPB, CFPB Orders Regions 

Bank to Pay $191 Million for Illegal Surprise 

Overdraft Fees (Sept. 28, 2022), https://

www.consumerfinance.gov/about-us/newsroom/ 

cfpb-orders-regions-bank-pay-191-million-forillegal-surprise-overdraft-fees/. 53 Id.; see also 87 FR 66935, 66935–40 (Nov. 7, 

2022). 

54 87 FR 5801 (Feb. 2, 2022). 

55CFPB 2014 Data Point at 21. 

56 Id. at 13. 

57CFPB 2017 Data Point at 6, 32–33. This 

dynamic was likely driven primarily by the 

scenario where a debit card or ATM transaction is 

authorized against a sufficient balance but then 

settles against an insufficient balance. A consumer 

who was not opted-in would have had this 

transaction approved and assessed no fee. A 

consumer who was opted-in may have been charged 

a fee. For discussion of regulatory guidance and 

CFPB enforcement actions addressing overdraft fees 

assessed on these ‘‘authorize positive, settle 

negative’’ transactions, see part II.E. 

58CFPB, A Closer Look: Overdraft and the Impact 

of Opting-In (Jan. 19, 2017), https://

files.consumerfinance.gov/f/documents/201701_

cfpb_Overdraft-and-Impact-of-Opting-In.pdf (citing 

a rate of 6.2 percent in a given year for non-optedin consumers and 2.5 percent for opted-in 

consumers, based on calculations using the same 

large bank data used in CFPB 2014 Data Point). 

59CFPB has previously used ‘‘frequent 

overdrafters’’ to describe those who incur more than 

10 overdraft/NSF fees in one year and ‘‘very 

frequent overdrafters’’ to describe those who incur 

more than 20 overdraft/NSF fees in one year. See 

CFPB 2017 Data Point at 4–5. 

60CFPB 2017 Data Point at 15–16 (finding that as 

neighborhood income decreases, overdraft 

frequency increases); id. at 6 (finding that nearly 70 

percent of frequent overdrafters had end-of-day 

balances with medians between $237 and $439, 

while another 20 percent had median end-of-day 

balances of $140). See also FHN Brief 2023 (finding 

that households with incomes under $30,000 were 

twice as likely to report at least one overdraft than 

those with incomes of $100,000 or more). 

61CFPB 2017 Data Point at 15–16. 

62FHN Brief 2023 (finding that 26 percent of 

Black, 23 percent of Latinx, and 14 percent of White 

households reported having overdrafted, making 

Black and Latinx households 1.9 and 1.6 times as 

likely as White households, respectively, to have 

overdrafted); see also Meghan Greene et al., FHN, 

FinHealth Spend Report 2022: What U.S. 

Households Spent on Financial Services During 

COVID–19, at 14 (Apr. 2022), https://finhealth

network.org/wp-content/uploads/2022/05/ 

FinHealth_Spend_Report_2022_Final.pdf (finding 

in a 2021 survey that Black and Latinx households 

with a savings or checking account were 1.8 and 1.4 

times as likely as White households to report 

having overdrafted). 

D. Consumer Impact of Overdraft Fees 

As cumulative overdraft fee revenue 

for financial institutions increased, so 

did the cumulative burden of overdraft 

fees on consumers. CFPB research found 

that 79 percent of combined overdraft 

and NSF fees were paid by 9 percent of 

consumers who paid more than 10 such 

fees per year, incurring a median of 

$380 in these fees in a year.45

Consumers paying more than 20 such 

fees in a year accounted for about 5 

percent of accounts, while paying over 

63 percent of the fees.46

High overdraft fees can make it more 

difficult for consumers to return their 

account to a positive balance, 

contributing to account charge-offs, 

involuntary account closures, and 

consumers blocked out of the banking 

system. The CFPB found that the banks 

with the highest share of accounts with 

frequent overdrafts tended to have the 

highest rates of involuntary account 

closure; conversely, those with the 

lowest share of accounts with frequent 

overdrafts tended to have the lowest 

rates of involuntary closure.47 Account 

closures, in turn, are often reported to 

account screening consumer reporting 

agencies, and a negative report from an 

account screening company may limit a 

consumer’s ability to open an account at 

a bank or credit union in the future. 

Negative experiences with overdraft fees 

likely also discourage many consumers 

from wanting a bank account at all. The 

FDIC estimates that there were nearly 6 

million unbanked households in the 

U.S. in 2021,48 nearly half of which had 

a bank account in the past.49 Of those 

previously banked households, more 

than two-thirds have little or no interest 

in having a bank account again,50 with 

high fees, unpredictable fees, and not 

enough funds to meet minimum balance 

requirements among the most cited 

reasons.51

Consumers can face significant 

uncertainty about whether they will 

incur overdraft fees. Though financial 

institutions may provide disclosures 

related to their transaction processing, 

deposit availability, and overdraft 

assessment policies, these policies can 

be extraordinarily complex.52 Even 

consumers who closely monitor their 

account balances may not know with 

certainty when transactions will post to 

their accounts, whether a particular 

transaction will be paid or returned 

unpaid, and whether a particular paid 

transaction will be deemed an overdraft 

and assessed an overdraft fee.53

In response to the CFPB’s 2022 

request for information regarding fees 

that are not subject to competitive 

processes that ensure fair pricing, which 

received over 80,000 responses,54

overdraft-related fees were by far the 

most common issue raised. Common 

concerns included that the fees were 

unclear or confusing, disproportionate 

compared to the incidents resulting in 

the fees, and difficult or impossible to 

avoid. These concerns were generally 

consistent with those reflected in 

complaints about overdraft fees 

consumers have submitted to the 

CFPB’s Consumer Complaints Database 

since its inception in 2011. 

The CFPB has also studied how 

consumers who are opted-in to overdraft 

services on one-time debit card and 

ATM transactions—and thus subject to 

overdraft fees on those transactions— 

fare compared to those who are not 

opted-in. In total, opted-in accounts 

incurred more than seven times as many 

overdraft fees as accounts that were not 

opted-in.55 At the account level, optedin accounts were three times as likely to 

have more than 10 overdrafts per year 

as accounts that were not opted-in.56

And among frequent overdrafters, those 

who were opted-in appeared similar 

across a number of dimensions to 

frequent overdrafters who were not 

opted-in, but incurred significantly 

more—at the median, 13 more— 

overdraft/NSF fees per year.57 In 

addition, involuntary account closure 

was about 2.5 times as likely for 

consumers who had opted-in than for 

consumers who had not.58

Consumers whose accounts are 

frequently overdrawn are typically more 

financially insecure than those who do 

not overdraw or who do so 

infrequently.59 Compared to non- or 

infrequent overdrafters, frequent 

overdrafters tend to have lower incomes 

and lower end-of-day balances.60 They 

are also less likely to have access to 

alternative credit options: they have 

lower credit scores, are less likely to 

have a general purpose credit card, and, 

if they do have such a card, they have 

less credit available on it.61 Black 

households and Latino households are 

more likely to incur overdraft fees than 

white households.62

E. Growing Regulatory Concerns About 

Non-Covered Overdraft Credit 

As financial institutions began to 

evolve provision of non-covered 

overdraft away from the historical 


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63OCC, Interpretive Letter No. 914, at 6 (Sept. 

2001), https://www.occ.gov/topics/charters-andlicensing/interpretations-and-actions/2001/ 

int914.pdf. 

64 67 FR 72618, 72620 (Dec. 6, 2002). In 2003, the 

Board noted that ‘‘[t]he Board’s staff is continuing 

to gather information on these services, which are 

not addressed in the final rule.’’ (68 FR 16185 (Apr. 

3, 2003)). 

65 69 FR 31760, 31761 (June 7, 2004). 

66See 70 FR 9127, 9128–29 (Feb. 24, 2005). 

67 74 FR 5212 (Jan. 28, 2009). 

68FDIC, Final Overdraft Payment Supervisory 

Guidance, FIL–81–2010 (Nov. 24, 2010), https://

www.fdic.gov/news/news/financial/2010/ 

fil10081.html. 

69 Id. 

70CFPB Circular 2022–06: Unanticipated 

Overdraft Fee Assessment Practices, 87 FR 66935 

(Nov. 7, 2022). The CFPB, the Board, and the FDIC 

also highlighted risks related to the imposition of 

overdraft fees from 2015 to 2018. See CFPB, 

Supervisory Highlights, at 8–9 (Winter 2015), 

https://files.consumerfinance.gov/f/201503_cfpb_

supervisory-highlights-winter-2015.pdf (last visited 

Jan. 4, 2024) (CFPB Winter 2015 Highlight); FRS, 

Interagency Overdraft Services Consumer 

Compliance Discussion, Outlook Live presentation 

slides, at 20–21 (Nov. 9, 2016), https://

www.consumercomplianceoutlook.org/-/media/cco/ 

Outlook-Live/2016/110916.pdf; FRS, Consumer 

Compliance Supervision Bulletin, at 12 (July 2018), 

https://www.federalreserve.gov/publications/files/ 

201807-consumer-compliance-supervisionbulletin.pdf (FDIC 2018 Highlight); FDIC, Consumer 

Compliance Supervisory Highlights, at 2–3 (June 

2019), https://www.fdic.gov/regulations/ 

examinations/consumercomplsupervisory

highlights.pdf?source=govdelivery&utm_

medium=email&utm_source=govdelivery (FDIC 

2019 Highlight). 

71OCC, OCC Bulletin 2023–12, Overdraft 

Protection Programs: Risk Management Practices 

(Apr. 26, 2023), https://www.occ.treas.gov/newsissuances/bulletins/2023/bulletin-2023-12.html 

(OCC Bulletin 2023–12); FDIC, Supervisory 

Guidance on Charging Overdraft Fees for Authorize 

Positive, Settle Negative Transactions, FIL–19–2023 

(Apr. 26, 2023), https://www.fdic.gov/news/ 

financial-institution-letters/2023/fil23019a.pdf. 

72OCC Bulletin 2023–12. 

73 81 FR 83934, 83934–35 (Nov. 22, 2016). The 

CFPB amended the 2016 Prepaid Final Rule in 2017 

and 2018. See 82 FR 18975 (Apr. 25, 2017); 83 FR 

6364 (Feb. 13, 2018). The 2016 Prepaid Final Rule 

and subsequent amendments to that rule are 

referred to collectively herein as the Prepaid 

Accounts Rule. 

74 81 FR 83934, 83935–36 (Nov. 22, 2016). 

75 15 U.S.C. 1602(f). 

76 81 FR 83934, 84168 (Nov. 22, 2016). 

77 Id. at 84160. 

78 Id. 

79 Id. at 84162. 

model and toward increased 

automation, greater frequency, and 

higher revenues, Federal regulators 

expressed increasing consumer 

protection concerns. In 2001, in 

declining to issue a requested ‘‘comfort 

letter’’ for a financial institution’s 

overdraft program, the OCC stated that 

overdraft services are extensions of 

credit and that the associated charges 

may be ‘‘just as burdensome as those 

imposed on borrowers utilizing other 

types of high interest rate credit.’’ 63 In 

2002, the Board noted that some noncovered overdraft credit may not be all 

that different from overdraft lines of 

credit,64 and in 2004 the Board stated 

that further consideration of the need 

for Regulation Z coverage of overdraft 

services would be appropriate if 

consumer protection concerns were to 

persist.65 In 2005, the Federal banking 

agencies issued joint guidance on noncovered overdraft credit noting that ‘‘the 

existing regulatory exceptions [i.e., 

exceptions in Regulation Z such that it 

does not apply] were created for the 

occasional payment of overdrafts, and as 

such could be reevaluated by the Board 

in the future, if necessary. Were the 

Board to address these issues more 

specifically, it would do so separately 

under its clear [TILA] authority.’’ 66 In 

2009, the Board adopted a rule under 

Regulation E prohibiting institutions 

from assessing overdraft fees on onetime debit card and ATM transactions 

unless the institution obtained the 

consumer’s affirmative consent to such 

fees (‘‘opt-in rule’’).67 Following the 

adoption of the Board’s rule, the FDIC 

issued additional supervisory 

guidance,68 which advises, among other 

things, that where transactions 

overdraw an account by a de minimis 

amount, the overdraft fee should be 

eliminated or be reasonable and 

proportional to the amount of the 

transaction.69

More recently, in October 2022, the 

CFPB issued a policy statement stating 

that the assessment of overdraft fees that 

consumers would not reasonably 

anticipate, including overdraft fees on 

debit card or ATM transactions that are 

authorized when the consumer’s 

available balance is sufficient to cover 

the transaction but that later settle 

against a negative balance due to 

intervening transactions or complex 

processes (‘‘authorize positive, settle 

negative’’ or ‘‘APSN’’ transactions), 

likely violates the Consumer Financial 

Protection Act of 2010 (CFPA)’s 

statutory prohibition against unfair 

practices.70 In April 2023, the OCC and 

FDIC issued guidance advising that 

overdraft fees charged on such 

transactions raise heightened risk of 

unfair, deceptive, or abusive acts or 

practices.71 The OCC’s guidance also 

describes certain practices that it notes 

may help to manage risks associated 

with overdraft programs, including 

assisting consumers in avoiding 

‘‘unduly high costs’’ in relation to the 

face value of the item being presented, 

the amount of their regular deposits, 

and their average account balances, and 

implementing fees and practices that 

bear a reasonable relationship to the 

risks and costs of providing overdraft 

programs.72

The CFPB has previously established 

rules governing overdraft credit on 

prepaid accounts. In 2016, the CFPB 

amended Regulation Z to provide that 

prepaid accounts that offer credit 

features are generally covered under 

Regulation Z’s credit card rules.73 The 

CFPB also amended the compulsory-use 

provision under Regulation E to prohibit 

prepaid card issuers from requiring 

consumers to set up preauthorized EFTs 

to repay credit extended through an 

overdraft credit feature accessible by a 

hybrid prepaid-credit card.74

In applying Regulation Z to overdraft 

credit features on prepaid accounts, the 

CFPB noted that the term ‘‘credit’’ in 

TILA includes ‘‘the right to . . . incur 

debt and defer its payment’’ 75 and 

explained that that definition ‘‘covers 

the situation when a consumer makes a 

transaction that exceeds the funds in the 

consumer’s account and a person elects 

to cover the transaction by advancing 

funds to the consumer.’’ 76 The CFPB 

further stated that overdraft fees on 

prepaid accounts ‘‘generally constitute 

finance charges, because they are 

directly payable by the consumer and 

imposed directly by the creditor as a 

condition of the extension of credit.’’ 77

The CFPB also stated that overdraft 

services offered in connection with 

prepaid accounts ‘‘can be regulated by 

Regulation Z as a ‘plan’ when the 

consumer is contractually obligated to 

repay the debt, even if the creditor 

retains, by contract, the discretion not to 

extend credit.’’ 78 At that time, the CFPB 

stated that it was continuing to study 

overdraft services on checking accounts 

and would propose any further 

regulatory consumer protections in that 

space through a separate rulemaking.79

F. Need for CFPB Action 

As a result of the evolution of the 

overdraft market over the last few 

decades, the overdraft-related exception 

to the definition of finance charge in 

Regulation Z no longer serves its 

original purpose. The CFPB is proposing 

to update the exception, and several 

others that allow financial institutions 

to follow different rules for overdraft 

credit than for other forms of consumer 

credit, to ensure that overdraft credit 

offered by very large financial 

institutions is generally treated no 

differently than any other form of 

consumer credit, except in the narrow 

cases where it is provided as a courtesy 

to consumers. Preserving a limited 

exception from Regulation Z may 

encourage the availability of overdraft 

coverage, which can benefit consumers, 

especially given that much overdraft 


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80Press Release, CFPB, CFPB Launches Inquiry 

into Overdraft Practices (Feb. 22, 2012), https://

www.consumerfinance.gov/about-us/newsroom/ 

consumer-financial-protection-bureau-launchesinquiry-into-overdraft-practices/. 

81 77 FR 12031 (Feb. 28, 2012). 

82See CFPB 2013 White Paper at 8; see also CFPB 

2014 Data Point at 6–7. 

83See CFPB 2013 White Paper; CFPB 2014 Data 

Point; CFPB 2017 Data Point. 

84Nicole Kelly & E ́ va Nagypa ́l, Ph.D., CFPB, Data 

Point: Checking Account Overdraft at Financial 

Institutions Served by Core Processors (Dec. 2021), 

https://files.consumerfinance.gov/f/documents/ 

cfpb_overdraft-core-processors_report_2021-12.pdf. 

85CFPB 2021 Data Point. 

86CFPB, Trends in overdraft/non-sufficient fund 

(NSF) fee revenue and practices, https://

content.consumerfinance.gov/data-research/ 

research-reports/trends-in-overdraftnon-sufficientfund-nsf-fee-revenue-and-practices/ (last updated 

Oct. 11, 2023) (reflecting data and analysis 

published periodically from Dec. 1, 2021 to 

present). 

87See Patrick Gibson & Lisa Rosenthal, Measuring 

the impact of financial institution overdraft 

programs on consumers, CFPB (June 16, 2022), 

https://www.consumerfinance.gov/about-us/blog/ 

measuring-the-impact-of-financial-institutionoverdraft-programs-on-consumers/; CFPB, Fall 2023 

Supervisory Highlights Junk Fees Update Special 

Edition, at 7–9 (Oct. 2023), https://

files.consumerfinance.gov/f/documents/cfpb_

supervisory_highlights_junk_fees-update-specialed_2023-09.pdf (CFPB Fall 2023 Highlight). 

88CFPB Market Monitoring of Publicly Available 

Overdraft Practices, Dec. 2022–July 2023. 

89 15 U.S.C. 1604(a). 

90 15 U.S.C. 1601(a). 

91 Id. 

92 Id. 

93Public Law 111–24; § 2, 123 Stat. 1734, 1735 

(2009). 

credit is incidental in nature, as 

consumers often do not know with 

certainty whether or not a transaction 

will be presented against sufficient 

funds. But a blanket exception for all of 

today’s non-covered overdraft credit— 

which poses serious risks to consumers 

as reflected in the discussion of 

consumer impacts noted above, and 

resembles other mass-marketed highcost consumer credit products—cannot 

be justified as an exception for a 

courtesy, nor as consistent with TILA’s 

purposes of promoting the informed use 

of credit and comparison shopping 

across credit products. Therefore, the 

CFPB proposes to limit the exception 

from TILA, for very large financial 

institutions, to overdraft credit that is 

offered at a cost to the consumer that 

does not exceed the financial 

institution’s costs and losses associated 

with providing such coverage. 

III. Outreach and Related Research 

The CFPB has engaged in outreach 

and research related to overdraft fees 

since soon after the CFPB’s inception. In 

2012, the CFPB initiated a broad inquiry 

into overdraft programs for consumer 

checking accounts.80 This inquiry 

included a request for information on 

the impacts of overdraft fees on 

consumers,81 and collection and 

analysis of overdraft-related data from 

several large banks with over $10 billion 

in assets that provided a significant 

portion of all U.S. consumer checking 

accounts.82 The CFPB published 

analyses of these data in a series of 

reports from 2013–2017, which 

examined institution-level policies and 

data, as well as account- and 

transaction-level data.83 These studies 

assessed, among other things, overdraft 

fee size, prevalence, and related account 

closure; overdraft policies and practices 

across institutions; the distribution of 

overdraft fee incurrence across 

accounts; how overdraft transactions 

and fees vary across opt-in status; the 

size of transactions that lead to 

overdrafts; how long account balances 

stay negative after overdrafts; and the 

characteristics of account holders 

(including end-of-day balance, deposits, 

credit score, and available credit on a 

credit card) across distributions of 

overdraft frequency. The CFPB also 

collected anonymized institution-level 

information from several core 

processors, which provide operations 

and accounting systems to financial 

institutions. This data collection 

informed the CFPB’s 2021 report 

assessing policies and practices among 

a large sample of financial institutions 

using core processors.84

In 2021, the CFPB examined financial 

institutions’ reliance on overdraft/NSF 

fees from 2015 to 2019, finding that it 

was persistent.85 Since then, the CFPB 

has continued tracking trends in the 

marketplace 86 and evaluating some 

banks’ key overdraft-related metrics 

through the CFPB’s supervision work.87

From December 2022 to June 2023, the 

CFPB reviewed the publicly available 

overdraft practices of financial 

institutions with assets over $10 

billion.88 In addition, the CFPB has 

recently collected information from 

several financial institutions under the 

CFPB’s supervision, including data 

regarding financial institutions’ costs 

associated with offering overdraft credit, 

which is discussed further in part V.C.2 

as well as in a separate report titled 

Overdraft and NSF Practices at Very 

Large Financial Institutions. 

Consistent with the CARD Act, the 

CFPB consulted with the following 

agencies regarding rules that implement 

TILA section 149: (1) the Office of the 

Comptroller of the Currency; (2) the 

Board of Directors of the Federal 

Deposit Insurance Corporation; and (3) 

the National Credit Union 

Administration Board. The CFPB also 

consulted with the Board and several 

other Federal agencies, as discussed in 

[part VIII]. 

IV. Legal Authority 

The CFPB is issuing this proposal 

pursuant to its authority under TILA, 

EFTA, and the CFPA. This part includes 

a general discussion of the provisions 

on which the CFPB relies in this 

rulemaking. 

A. Truth in Lending Act 

TILA section 105(a). TILA section 

105(a) directs the CFPB to prescribe 

regulations to carry out the purposes of 

TILA and provides that such regulations 

may contain additional requirements, 

classifications, differentiations, or other 

provisions, and may provide for such 

adjustments and exceptions for all or 

any class of transactions, that the CFPB 

judges are necessary or proper to 

effectuate the purposes of TILA, to 

prevent circumvention or evasion 

thereof, or to facilitate compliance 

therewith.89 A purpose of TILA is to 

assure a meaningful disclosure of credit 

terms so that the consumer will be able 

to compare more readily the various 

available credit terms and avoid the 

uninformed use of credit.90 This stated 

purpose is tied to Congress’s finding 

that economic stabilization would be 

enhanced and competition among the 

various financial institutions and other 

firms engaged in the extension of 

consumer credit would be strengthened 

by the informed use of credit.91 Thus, 

strengthened competition among 

financial institutions is a goal of TILA, 

achieved through the effectuation of 

TILA’s purposes. A purpose of TILA is 

also to protect the consumer against 

inaccurate and unfair credit billing and 

credit card practices.92

CARD Act Section 2. Section 2 of the 

CARD Act, which amended TILA to 

establish fair and transparent practices 

relating to the extension of credit under 

an open-end consumer plan, and for 

other purposes, also specifically grants 

the CFPB authority to issue rules and 

model forms it considers necessary to 

carry out the CARD Act and 

amendments made by the CARD Act.93

For the reasons discussed in this 

notice, the CFPB is proposing 

amendments to Regulation Z with 

respect to overdraft credit to carry out 

TILA’s purposes. The CFPB at this time 

is proposing to retain additional 

requirements, adjustments, and 

exceptions as, in the CFPB’s judgment, 

are necessary and proper to carry out 

the purposes of TILA, prevent 


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94 15 U.S.C. 1693. 

95 15 U.S.C. 1693k. 

96 15 U.S.C. 1693b(a). 

97 15 U.S.C. 1693b(c). 

98See S. Rept. No. 95–1273, at 26 (1978). 

99 12 U.S.C. 5512(b)(1). 

100CFPA section 1002(14), 12 U.S.C. 5481(14) 

(defining ‘‘Federal consumer financial law’’ to 

include the provisions of the CFPA and enumerated 

consumer laws; ‘‘enumerated consumer laws’’ is 

defined in CFPA section 1002(12), 12 U.S.C. 

5481(12)). 

101Computed from 2022 FFIEC and National 

Credit Union Administration call report data. 

102Estimated using data from 2022 FFIEC Call 

Reports and methodology discussed at FN 29. 

circumvention or evasion thereof, or to 

facilitate compliance. In developing 

these aspects of the proposal pursuant 

to its authority under TILA section 

105(a), the CFPB has considered the 

purposes of TILA, including ensuring 

meaningful disclosures, facilitating 

consumers’ ability to compare credit 

terms, helping consumers avoid the 

uninformed use of credit, and protecting 

consumers against inaccurate and unfair 

credit billing and credit card practices, 

and the findings of TILA, including 

strengthening competition among 

financial institutions and promoting 

economic stabilization. 

B. Electronic Fund Transfer Act 

EFTA section 902 establishes that the 

purpose of the statute is to provide a 

basic framework establishing the rights, 

liabilities, and responsibilities of 

participants in EFT and remittance 

transfer systems but that its primary 

objective is the provision of individual 

consumer rights.94 Among other things, 

EFTA contains provisions regarding 

compulsory use of EFTs.95

EFTA section 904(a) authorizes the 

CFPB to prescribe regulations to carry 

out the purposes of EFTA.96 EFTA 

section 904(c) provides that regulations 

prescribed by the CFPB may contain 

such classifications, differentiations, or 

other provisions, and may provide for 

such adjustments or exceptions for any 

class of EFTs or remittance transfers, 

that the CFPB deems necessary or 

proper to effectuate the purposes of 

EFTA, to prevent circumvention or 

evasion, or to facilitate compliance.97

The Senate Report accompanying EFTA 

noted that regulations are ‘‘essential to 

the act’s effectiveness’’ and ‘‘will add 

flexibility to the act by permitting the 

[CFPB] to modify the act’s requirements 

to suit the characteristics of individual 

EFT services. Moreover, since no one 

can foresee EFT developments in the 

future, regulations would keep pace 

with new services and assure that the 

act’s basic protections continue to 

apply.’’ 98

EFTA section 904(c) also provides 

that the ‘‘CFPB shall by regulation 

modify the requirements imposed by 

this subchapter on small financial 

institutions if the CFPB determines that 

such modifications are necessary to 

alleviate any undue compliance burden 

on small financial institutions and such 

modifications are consistent with the 

purpose and objective of this 

subchapter.’’ 

As discussed in part V below, the 

CFPB is adopting amendments to 

Regulation E, including with respect to 

compulsory use of preauthorized 

repayment and the definition of 

overdraft services, pursuant to the 

CFPB’s authority under, as applicable, 

EFTA section 904(a) and (c). The CFPB 

is proposing to retain existing rules for 

financial institutions with less than $10 

billion in assets because the CFPB has 

determined that such exceptions will 

alleviate undue compliance burdens as 

the CFPB continues to examine the 

market for smaller financial institutions. 

C. Consumer Financial Protection Act 

CFPA section 1022(b)(1). Section 

1022(b)(1) of the CFPA authorizes the 

CFPB to prescribe rules ‘‘as may be 

necessary or appropriate to enable the 

[CFPB] to administer and carry out the 

purposes and objectives of the Federal 

consumer financial laws, and to prevent 

evasions thereof.’’ 99

Among other statutes, TILA, EFTA, 

and the CFPA are Federal consumer 

financial laws.100 Accordingly, in 

setting forth this proposal, the CFPB is 

exercising its authority under CFPA 

section 1022(b) to prescribe rules that 

carry out the purposes and objectives of 

TILA, EFTA, and the CFPA and prevent 

evasion of those laws. 

V. Discussion of the Proposed Rule 

A. Who is covered? (§ 1026.62(b)(8)) 

This proposed rule would expand 

protections to consumers of overdraft 

credit at financial institutions with more 

than $10 billion in assets. This proposal 

would not change the regulatory 

framework for overdraft credit offered 

by financial institutions with $10 billion 

or less in assets. 

To limit the proposed rule to 

overdraft credit offered by financial 

institutions with assets of more than $10 

billion, the proposed rule would define 

in proposed § 1026.62(b)(8) the term 

‘‘very large financial institution’’ as an 

insured depository institution or an 

insured credit union with total assets of 

more than $10 billion and any affiliate 

thereof. A financial institution may 

determine whether it has total assets of 

more than $10 billion using the same 

determination that is used to determine 

whether such institutions are subject to 

the CFPB’s supervisory authority under 

12 U.S.C. 5515(a). The CFPB currently 

publishes a list of such institutions at 

https://www.consumerfinance.gov/ 

compliance/supervision-examinations/ 

institutions/. As discussed below, the 

proposed rule then uses the term ‘‘very 

large financial institution’’ to limit the 

scope of overdraft credit that would be 

subject to the proposed rule. 

The CFPB has preliminarily 

determined that overdraft services 

offered by financial institutions with 

more than $10 billion in assets should 

be subject to this rule. As noted above, 

in the supervisory context, Congress 

adopted in 12 U.S.C. 5515(a) a $10 

billion threshold to define the ‘‘very 

large banks, savings associations, and 

credit unions’’ that would be subject to 

the CFPB’s primary supervision 

authority. The CFPB has preliminarily 

determined that a $10 billion threshold 

similarly should be used to define ‘‘very 

large financial institution’’ for limiting 

the scope of overdraft credit that would 

be covered by the proposed rule. 

The CFPB has preliminarily 

determined that consumers would 

benefit from the CFPB’s proceeding with 

a rule that would apply to very large 

financial institutions—i.e., those with 

assets of $10 billion or more. Such a 

rule would increase protections for the 

overwhelming majority of consumers of 

overdraft credit. This proposal would 

cover financial institutions holding 

approximately 80 percent of consumer 

deposits as of December 2022 101 and 

responsible for approximately 68 

percent of overdraft charges as of 

December 2022.102 The CFPB believes 

that consumers at very large financial 

institutions would benefit from the 

expanded protections that would be 

provided by the proposed rule. 

In light of the different circumstances 

smaller financial institutions may face 

in adapting to the proposed regulatory 

framework, the CFPB is proposing not to 

extend the new rule to those institutions 

with $10 billion or less in assets. While 

the CFPB is not proposing any changes 

to the regulatory requirements for 

smaller financial institutions, the CFPB 

will continue to monitor the market in 

coordination with State and Federal 

supervisors. 

The CFPB seeks comment on its 

preliminary determination to apply the 

proposed rule only to very large 

financial institutions and on whether 

$10 billion is an appropriate threshold 

for defining very large financial 

institutions. 


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103 15 U.S.C. 1602(f). 

104 81 FR 83934, 84168 (Nov. 22, 2016). 

105The 2016 Prepaid Final Rule and subsequent 

amendments to that rule are referred to collectively 

herein as the Prepaid Accounts Rule. 

106 15 U.S.C. 1603(2). 

107See § 1026.2(a)(17)(i) (defining ‘‘creditor’’ as 

‘‘[a] person who regularly extends consumer credit 

that is subject to a finance charge. . . .’’). 

108 15 U.S.C. 1602(f); 12 CFR 1026.2(a)(14). 

109 15 U.S.C. 1602(j). 

B. What transactions and accounts are 

covered? 

The CFPB proposes to add 

§ 1026.62(a) and (b) to define the scope 

of transactions and accounts that would 

be covered under the proposed rule. The 

proposed rule would introduce new 

terms and amend several existing 

Regulation Z definitions and their 

commentary to state that overdraft 

credit is credit and assist with ease of 

reference to various types of overdraft 

credit. First, the proposal would define 

overdraft credit in proposed 

§ 1026.62(a)(2), and proposed comment 

2(a)(14)–4 would provide a brief 

example to illustrate that overdraft 

credit is credit under TILA and 

Regulation Z. 

The CFPB’s proposed rule would add 

commentary to the definition of openend credit in § 1026.2(a)(20) to confirm 

that overdraft credit that is subject to a 

finance charge is generally open-end 

credit and is therefore subject to the 

Regulation Z provisions that apply to 

open-end credit. The proposed 

definitions of covered overdraft credit 

and non-covered overdraft credit in new 

§ 1026.62(b) would assist with 

referencing overdraft credit that would 

be or not be credit subject to Regulation 

Z under this proposal. Covered 

overdraft credit under this proposal 

would be overdraft credit that is subject 

to a finance charge or is payable by 

written agreement in more than four 

installments, and would be subject to 

Regulation Z. Non-covered overdraft 

credit under this proposal would be 

overdraft credit that is neither subject to 

a finance charge nor payable by written 

agreement in more than four 

installments, and would not be subject 

to Regulation Z. Additionally, the CFPB 

proposes to add a new definition of 

covered overdraft credit account to 

facilitate ease of reference to credit 

accounts through which the financial 

institutions extend or can extend 

covered overdraft credit. 

1. Overdraft Credit (§§ 1026.2(a)(14) and 

1026.62(a)) 

TILA defines ‘‘credit’’ to mean the 

right granted by a creditor to a debtor to 

defer payment of debt or to incur debt 

and defer its payment.103 Regulation Z 

similarly defines ‘‘credit’’ in existing 

§ 1026.2(a)(14) to mean the right to defer 

payment of debt or to incur debt and 

defer its payment. To facilitate 

compliance with the proposed rule, 

proposed comment 2(a)(14)–4 would 

provide a brief, illustrative example of 

overdraft credit. The 2016 Prepaid Final 

Rule similarly notes that a ‘‘person, in 

extending overdraft funds, has provided 

the consumer with ‘the right . . . to 

incur debt and defer its payment.’ ’’ 104

The CFPB is proposing to update 

several exceptions in Regulation Z, 

increasing consumer protections that 

apply to overdraft credit offered by very 

large financial institutions. To that end, 

the CFPB would add a definition of 

‘‘overdraft credit’’ in proposed 

§ 1026.62(a) to help clarify the scope of 

transactions covered by the proposed 

rule. Proposed § 1026.62(a) would 

define ‘‘overdraft credit’’ as any 

consumer credit extended by a financial 

institution to pay a transaction from a 

checking or other transaction account 

(other than a prepaid account as defined 

in § 1026.61) held at the financial 

institution when the consumer has 

insufficient or unavailable funds in that 

account. Proposed § 1026.62(a) would 

provide non-exhaustive examples, such 

as consumer credit extended through a 

transfer from a credit card account or 

overdraft line of credit. 

The proposed definition of ‘‘overdraft 

credit’’ would not cover credit features 

with respect to a prepaid account as 

defined in § 1026.61. The CFPB has 

preliminarily determined that it would 

be unnecessary and unduly burdensome 

to include prepaid accounts within the 

scope of this proposed rule. The CFPB’s 

Prepaid Accounts Rule already provides 

comprehensive consumer protections 

tailored to prepaid accounts.105

Proposed § 1026.62(a) would also 

clarify that the term ‘‘overdraft credit’’ 

does not include credit exempt from 

Regulation Z pursuant to existing 

§ 1026.3. For example, consistent with 

TILA section 104(2),106 transactions in 

securities or commodities accounts in 

which credit is extended by a brokerdealer registered with the Securities and 

Exchange Commission or the 

Commodity Futures Trading 

Commission are not subject to 

Regulation Z pursuant to existing 

§ 1026.3(d). 

2. Open-End Credit (§ 1026.2(a)(20)) 

The term ‘‘open-end credit’’ is defined 

in § 1026.2(a)(20) as (1) consumer 

‘‘credit,’’ (2) that is extended under a 

‘‘plan,’’ (3) where the person extending 

the credit may impose a ‘‘finance 

charge’’ from time to time on an 

outstanding unpaid balance, (4) the 

person extending the credit is a 

‘‘creditor,’’ (5) the person extending the 

credit reasonably contemplates repeated 

transactions, and (6) the amount of 

credit that may be extended to the 

consumer during the term of the plan 

(up to any limit set by the creditor) is 

generally made available to the extent 

that any outstanding balance is repaid. 

For the reasons discussed below, the 

CFPB has preliminarily determined that 

virtually all overdraft credit that 

financial institutions provide today, 

such as through negative balances on 

checking accounts, would meet the 

Regulation Z definition of open-end 

credit, but for Regulation Z excepting 

overdraft fees from the definition of 

finance charge. Specifically, but for 

those exceptions, the typical $35 

overdraft fee plainly constitutes a 

finance charge and a financial 

institution that regularly assesses such a 

finance charge is a creditor.107

The CFPB has preliminarily 

determined that overdraft credit that is 

typical in the market today would 

become covered overdraft credit under 

the proposed rule and would meet the 

six elements of open-end credit under 

Regulation Z. For clarity and to facilitate 

compliance, the CFPB is proposing 

additional commentary regarding two 

terms used in the definition of open-end 

credit: ‘‘plan’’ and ‘‘finance charge.’’ 

The following discusses each of the six 

elements in turn. 

(1) Credit. As discussed above, a 

person extending overdraft funds has 

provided credit under TILA and 

Regulation Z.108 Because the consumer 

is obligated to repay the funds, the 

financial institution is allowing the 

consumer to incur debt and defer its 

payment consistent with the TILA and 

Regulation Z definitions of ‘‘credit.’’ 

(2) Plan. The CFPB has preliminarily 

determined that a checking account 

agreement offered in connection with 

overdraft credit would—but for the 

Regulation Z exceptions of overdraft 

fees from the definition of finance 

charge—constitute a ‘‘plan’’ consistent 

with the definition of ‘‘open-end credit 

plan’’ in TILA.109 Specifically, but for 

the Regulation Z exceptions, the 

checking account agreement—consistent 

with the language of comment 2(a)(20)– 

2.i—would be ‘‘a contractual 

arrangement between the creditor [the 

institution offering checking account 

overdraft credit] and the consumer.’’ As 

noted, the CFPB’s proposed rule would 

modify those exceptions. The CFPB has 

preliminarily determined that an 


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13862 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

110A card issuer that extends covered overdraft 

credit that takes the form of closed-end credit and 

is subject to a finance charge or payable by a written 

agreement in more than four installments 

(including closed-end credit accessed by a hybrid 

debit-credit card) would be a creditor under 

§ 1026.2(a)(17)(iv) and subject to the special rules 

in that paragraph. A person who is not a card issuer 

and regularly extends covered overdraft credit that 

takes the form of closed-end credit and is subject 

to a finance charge or is payable by written 

agreement in more installments would be a creditor 

under § 1026.2(a)(17)(i) and subject to the closedend credit rules in Regulation Z, subpart C. 

111See § 1026.2(a)(17)(i). 

112CFPB 2017 Data Point at 13. 

institution offering checking account 

overdraft credit would be a creditor 

(discussed under (4) Person extending 

credit is a creditor, below) and the 

account agreement would be ‘‘a 

contractual arrangement between the 

creditor and the consumer.’’ The CFPB 

proposes to add comment 2(a)(20)–2.iv 

to clarify that with respect to covered 

overdraft credit, a plan means a program 

where the consumer is obligated 

contractually to repay any credit 

extended by the creditor, even if the 

creditor retains discretion not to extend 

credit in individual transactions. 

The CFPB has preliminarily 

determined that the reservation of such 

discretion in connection with covered 

overdraft credit does not connote the 

absence of an open-end credit plan. The 

CFPB understands that financial 

institutions offering automated overdraft 

services include in their agreements 

provisions about how the overdraft 

service will operate and information 

about overdraft fees. These terms-andconditions documents typically 

stipulate that consumers using overdraft 

programs must and do agree to repay the 

debt created by an overdraft and the 

related fee, indicating that a contractual 

arrangement between the creditor and 

the consumer exists. Although these 

agreements typically state that the 

financial institution retains discretion to 

authorize or decline any particular 

overdraft, as a practical matter, financial 

institutions operating automated 

overdraft programs exercise limited if 

any discretion in authorizing particular 

transactions so long as the overdraft 

transaction is within the overdraft 

coverage limit that the institution 

internally established. The CFPB notes 

that credit card issuers similarly reserve 

the right to reject individual 

transactions in their contractual 

agreements, yet credit card programs are 

treated as open-end credit plans under 

TILA and Regulation Z. Treating the 

provision of automated overdraft credit 

in a comparable way would promote 

consistency. Therefore, the CFPB has 

preliminarily determined that a 

checking account agreement offered in 

connection with overdraft credit is a 

plan notwithstanding that the person 

offering the agreement reserves the right 

to not extend credit on individual 

transactions. 

(3) Imposing a ‘‘finance charge’’ from 

time to time. The CFPB has 

preliminarily determined that overdraft 

credit is generally subject to fees that 

would be finance charges but for 

Regulation Z’s exceptions to the 

statutory finance charge definition. As 

noted, the CFPB’s proposed rule would 

modify those exceptions such that 

checking account overdraft fees would 

generally be finance charges. In the 

absence of the exceptions, the CFPB has 

preliminarily determined that an 

institution offering checking account 

overdraft credit would be imposing a 

finance charge from time to time. 

While the proposed definition of 

covered overdraft credit includes 

overdraft credit that is subject to a 

finance charge as well as overdraft 

credit payable by a written agreement in 

more than four installments, the CFPB 

anticipates that most overdraft credit 

would meet the definition of covered 

overdraft credit because it is subject to 

a finance charge rather than because it 

is payable in more than four 

installments.110 The CFPB proposes 

comment 2(a)(20)–4.iii to explain that 

charges for paying a transaction that 

overdraws a consumer’s account 

generally would be finance charges 

unless they are expressly excluded from 

the definition of finance charge by the 

proposed rule. 

Proposed comment 2(a)(20)–4.iii 

would clarify that these are charges 

‘‘imposed from time to time on an 

outstanding unpaid balance’’ as long as 

there is no specific amount financed for 

the plan for which the finance charge, 

total of payments, and payment 

schedule can be calculated. The CFPB 

does not anticipate that there will be a 

specific amount financed for overdraft 

credit at the time the credit plan is 

established because the CFPB 

anticipates that the credit lines on these 

credit plans generally will be 

replenishing (discussed under (6) 

Amount of credit replenishes when 

outstanding balance is repaid, below). 

In such cases, an amount financed for 

the plan could not be calculated because 

the creditor will not know at the time 

the plan is established the amount of 

credit that will be extended under the 

plan. Thus, to the extent that any 

finance charge may be imposed in 

connection with such a credit plan, the 

credit plan will meet this criterion. 

(4) Person extending credit is a 

creditor. Assuming overdraft fees are 

finance charges, the CFPB has 

preliminarily determined that an 

institution providing covered overdraft 

credit is a ‘‘creditor’’ for purposes of the 

definition of ‘‘open-end credit.’’ A 

‘‘creditor’’ is generally defined under 

Regulation Z to mean a person who 

regularly extends consumer credit that 

is subject to a finance charge or is 

payable by written agreement in more 

than four installments (not including a 

down payment), and to whom the 

obligation is initially payable, either on 

the face of the note or contract, or by 

agreement when there is no contract.111

Therefore, to the extent that overdraft 

credit is subject to a finance charge and 

is accordingly covered overdraft credit, 

it is also extended by a creditor if the 

creditor ‘‘regularly extends’’ overdraft 

credit. The CFPB anticipates that most 

persons offering covered overdraft credit 

regularly extend overdraft credit and 

therefore would meet the definition of 

‘‘creditor.’’ If an institution providing 

open-end covered overdraft credit is 

considered a ‘‘card issuer,’’ then it 

would also be considered a creditor 

under current § 1026.2(a)(17)(iii) for 

purposes of Regulation Z, subpart B. 

(5) Reasonably contemplates repeated 

transactions. The CFPB has 

preliminarily determined that 

institutions providing checking account 

overdraft credit typically contemplate 

repeated overdraft transactions as the 

CFPB found that 93.2 percent of 

overdraft and NSF fees were assessed on 

consumers with four or more overdraft 

and NSF transactions per year.112 The 

CFPB has therefore preliminarily 

determined that this fifth element of the 

open-end credit definition is satisfied. 

(6) Amount of credit replenishes when 

outstanding balance is repaid. The 

CFPB has preliminarily determined that 

institutions providing checking account 

overdraft credit generally replenish the 

amount of overdraft credit available to 

consumers up to any overdraft coverage 

limit (i.e., consumers’ ‘‘shadow lines’’) 

to the extent that any outstanding 

overdraft balance is repaid. This 

replenishable credit distinguishes openend credit from a series of advances 

made pursuant to a closed-end credit 

loan commitment, but it does not mean 

that the credit plan must always be 

replenished to the original amount. The 

creditor may refuse to extend new credit 

in a particular case due to changes in 

the creditor’s financial condition or the 

consumer’s creditworthiness, if 

permitted by Regulation Z. While 

consumers should have a reasonable 

expectation of obtaining credit as long 

as they remain current, further 

extensions of credit need not be an 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13863 

113See 12 CFR 1026.1(c), and 1026.2(a)(17)(iii). 

Card issuers are also covered by the general rule 

that subjects them to Regulation Z if they extend 

open-end credit. 

114Comment 2(a)(15)–2.ii.A. This comment 

provides that a debit card is not a credit card if 

there is no credit agreement, even if the creditor 

occasionally honors an inadvertent overdraft. 

Because the debit card is not considered a ‘‘credit 

card’’ under Regulation Z, a financial institution 

offering a debit card that can access non-covered 

overdraft credit is not considered a card issuer. 

115 12 CFR 1026.4(c)(3). 

116 12 CFR 1026.4(b)(2). 

absolute right in order for the plan to 

meet the self-replenishing criterion. 

Because the CFPB anticipates that 

financial institutions will generally 

replenish overdraft credit to the extent 

that any outstanding overdraft balance 

is repaid, the CFPB has preliminarily 

determined that covered overdraft credit 

plans are generally replenishing. 

3. Covered Overdraft Credit 

(§ 1026.62(b)(3)), Non-Covered 

Overdraft Credit (§ 1026.62(b)(6)), and 

Card Issuer (§ 1026.2(a)(7)) 

The CFPB proposes to define 

‘‘covered overdraft credit’’ as overdraft 

credit that is subject to a finance charge 

or is payable by written agreement in 

more than four installments and ‘‘noncovered overdraft credit’’ as overdraft 

credit that is not subject to a finance 

charge and is not payable by written 

agreement in more than four 

installments. The purpose of the 

proposed definitions is to assist with 

ease of reference to overdraft credit that 

is subject to, or covered by, Regulation 

Z. As discussed in more detail in part 

V.C, some charges imposed in 

connection with overdraft credit are not 

considered finance charges. Thus, use of 

the proposed definitions will also help 

a person extending overdraft credit to 

readily ascertain whether they are 

subject to the requirements of the 

regulation. 

The proposed definition of ‘‘overdraft 

credit’’ is limited to consumer credit, 

but, even with that qualification, not all 

overdraft credit would be subject to 

Regulation Z if the definition is 

finalized as proposed. Many provisions 

of Regulation Z apply to a ‘‘creditor,’’ 

which generally is defined at 

§ 1026.2(a)(17)(i) as ‘‘[a] person who 

regularly extends consumer credit that 

is subject to a finance charge or is 

payable by written agreement in more 

than four installments.’’ Thus, a 

financial institution must offer overdraft 

credit that is subject to a finance charge 

or is payable by written agreement in 

more than four installments (i.e., 

covered overdraft credit) to be 

considered a creditor under Regulation 

Z. (Any financial institution offering 

overdraft credit will generally satisfy the 

definition of ‘‘regularly’’ under 

§ 1026.2(a)(17)(v).) Because some 

charges imposed in connection with 

overdraft credit are not considered 

finance charges, a financial institution 

may charge for overdraft credit without 

being considered a creditor under 

Regulation Z if certain requirements are 

met. 

Section 1026.2(a)(7) defines ‘‘card 

issuer’’ as a person that issues a credit 

card or that person’s agent with respect 

to the card. Unlike other creditors, card 

issuers are subject to Regulation Z even 

if they extend credit that is not subject 

to a finance charge and is not payable 

by written agreement in more than four 

installments.113 However, this does not 

apply to overdraft credit that is not 

subject to a finance charge or repayable 

by written agreement in more than four 

installments, even if the financial 

institution extending such credit would 

otherwise be considered a card 

issuer.114 Under the proposal, 

extensions of overdraft credit that are 

not subject to a finance charge and are 

not payable by written agreement in 

more than four-installments (noncovered overdraft credit) would 

continue to not be covered by 

Regulation Z. Further, under the 

proposal, institutions providing debit 

cards that access only non-covered 

overdraft credit would continue to not 

be card issuers, and would therefore not 

be creditors under § 1026.2(a)(17)(iii), 

because the CFPB has preliminarily 

determined that allowing financial 

institutions to offer debit cards that 

access only below breakeven overdraft 

credit without being subject to 

Regulation Z would further the 

purposes of this proposal as discussed 

in part V.C. 

For these reasons, the CFPB has 

preliminarily determined that a new 

definition of ‘‘covered overdraft credit’’ 

that parallels the general definition of 

creditor will assist with ease of 

reference to overdraft credit that is 

subject to Regulation Z. Additionally, 

the CFPB has preliminarily determined 

that a new definition of ‘‘non-covered 

overdraft credit’’ will assist with ease of 

reference to overdraft credit that is not 

subject to, or covered by, Regulation Z, 

particularly in the proposed rule’s costs 

and losses calculation in § 1026.62(d). 

4. Covered Overdraft Credit Account 

(§ 1026.62(b)(4)) 

The CFPB proposes to define 

‘‘covered overdraft credit account’’ as a 

credit account through which a 

financial institution extends or can 

extend covered overdraft credit. The 

term includes any line of credit, credit 

card account, credit feature, credit line, 

credit plan, or credit subaccount 

through which the financial institution 

extends or can extend covered overdraft 

credit. Proposed § 1026.62(c) would 

require very large financial institutions 

to structure covered overdraft credit as 

a separate credit account. Therefore, the 

term ‘‘covered overdraft credit account’’ 

would assist in ease of reference to these 

separate credit accounts and in 

distinguishing them from tied checking 

or other transaction accounts. 

C. Changes to the Definition of ‘‘finance 

charge’’ (§ 1026.4(b)(2), (b)(12), and 

(c)(3); § 1026.62(d)) 

Under Regulation Z, the term ‘‘finance 

charge’’ generally is defined in 

§ 1026.4(a) to mean ‘‘the cost of 

consumer credit as a dollar amount.’’ It 

includes any charge payable directly or 

indirectly by the consumer and imposed 

directly or indirectly by the creditor as 

an incident to or a condition of the 

extension of credit. It does not include 

any charge of a type payable in a 

comparable cash transaction. 

Regulation Z currently excludes 

certain fees or charges imposed by a 

financial institution for paying items 

that overdraw an account from the 

definition of ‘‘finance charge’’ unless 

‘‘the payment of such items and the 

imposition of the charge were 

previously agreed upon in writing.’’ 115

Additionally, where the payment of 

such items and imposition of the charge 

were previously agreed upon in writing, 

when a creditor imposes a service, 

transaction, activity, or carrying charge 

for each item that results in an overdraft 

on an account, such fees are excluded 

from the definition of finance charge if 

they do not exceed the charges imposed 

for paying or returning overdrafts on a 

similar transaction account that does 

not have such a written agreement.116

Neither of these exclusions appear 

within the statutory text of TILA. 

The proposal would amend the 

definition of ‘‘finance charge’’ in 

§ 1026.4 in three ways. First, it would 

modify the partial exception provided 

in § 1026.4(b)(2) for certain charges 

imposed on checking and other 

transaction accounts so that the partial 

exception would no longer apply to 

‘‘covered asset accounts’’ as defined in 

proposed § 1026.62. Second, it would 

add proposed § 1026.4(b)(12) that would 

provide examples of charges imposed in 

connection with covered overdraft 

credit that are finance charges. Third, it 

would amend the exception provided in 

§ 1026.4(c)(3) so that the exception 

would no longer apply to ‘‘above 

breakeven overdraft credit’’ as defined 


ddrumheller on DSK120RN23PROD with PROPOSALS2
13864 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

117 12 CFR 1026.4(a). Current § 1026.4 

implements TILA section 106 by largely mirroring 

the statutory definition of finance charge and the 

specific exclusions from that definition. In addition, 

§ 1026.4 specifies certain inclusions and exclusions 

from the finance charge that are not specifically 

listed in the statute. For example, § 1026.4(c) 

specifically excludes application fees and forfeited 

interest from the definition of finance charge, 

whereas TILA does not. 

118See 15 U.S.C. 1605(a). 

119Regulation Z comment 4(a)–1. 

120For example, the Board initially adopted 

comment 226.4(a)–4 to indicate that a fee charged 

by a card issuer when a consumer takes a cash 

advance on a credit card account using an ATM was 

not a finance charge to the extent that it did not 

exceed the charge imposed by the card issuer on its 

cardholders for using an ATM to withdraw cash 

from a consumer asset account, such as a checking 

or savings account. 48 FR 54642 (Dec. 6, 1983) and 

49 FR 40560 (Oct. 17, 1984). After subsequent 

rulemaking activity, current comment 4(a)–4.1 

provides that, for example, any charge imposed on 

a credit cardholder by a card issuer for the use of 

an ATM to obtain a cash advance is a finance 

charge regardless of whether the card issuer 

imposes a charge on its debit cardholders for using 

the ATM to withdraw cash from a consumer asset 

account, such as a checking or savings account. 74 

FR 5263 (Jan. 29, 2009). 

121 34 FR 2002, 2004 n.2 (Feb. 11, 1969). 

122 46 FR 20848, 20894 (Apr. 7, 1981). 

123 46 FR 50288, 50299 (Oct. 9, 1981). 

124 63 FR 16669, 16675 (Apr. 6, 1998). 

125 76 FR 79767 (Dec. 22, 2011). 

126 81 FR 83934, 84369, 84374 (Nov. 22, 2016). 

127 Id. at 84185. 

128 Id. at 84186. 

129 Id. 

130 Id. at 84186–87. 

131 Id. at 84187. 

in proposed § 1026.62. These proposed 

amendments are intended to specify 

which overdraft transactions include a 

finance charge and, therefore, may be 

subject to the requirements of TILA and 

Regulation Z. 

1. Comparable Cash Transactions 

(§ 1026.4(b)(2)) 

Under TILA section 106(a) (15 U.S.C. 

1605(a)), the term ‘‘finance charge’’ 

generally provides that ‘‘the amount of 

the finance charge in connection with 

any consumer credit transaction shall be 

determined as the sum of all charges, 

payable directly or indirectly by the 

person to whom the credit is extended, 

and imposed directly or indirectly by 

the creditor as an incident to the 

extension of credit.’’ 117 The finance 

charge does not include any charge of a 

type payable in a comparable cash 

transaction.118

The current official interpretations 

address comparable cash transactions by 

stating that charges imposed uniformly 

in cash and credit transactions are not 

finance charges and by instructing that, 

to determine whether a transaction is a 

finance charge, the creditor should 

compare the credit transaction to a 

similar cash transaction.119 The Board 

updated the commentary addressing 

finance charges numerous times.120

Section 1026.4(b) lists examples of the 

types of charges that generally are 

finance charges. In particular, 

§ 1026.4(b)(2) provides that the finance 

charge includes ‘‘[s]ervice, transaction, 

activity, and carrying charges, including 

any charge imposed on a checking or 

other transaction account (except a 

prepaid account as defined in § 1026.61) 

to the extent that the charge exceeds the 

charge for a similar account without a 

credit feature.’’ 

The historical roots of § 1026.4(b)(2) 

trace back to the first version of 

Regulation Z, published by the Board in 

1969. In that version, § 226.4(a)(2) 

indicated that the finance charge 

included service, transaction, activity, 

or carrying charges. The 1969 version of 

§ 226.4(a)(2) also included a footnote 

stating that the charges listed in 

§ 226.4(a)(2) included ‘‘any charges 

imposed by the creditor in connection 

with a checking account to the extent 

that such charges exceed any charges 

the customer is required to pay in 

connection with such account when it 

is not being used to extend credit.’’ 121

As part of its 1981 amendments to 

Regulation Z, the Board moved the text 

of § 226.4(a)(2) to its current location in 

§ 1026.4(b)(2) and incorporated the 

language from the accompanying 

footnote into the main regulation 

text.122 Later that year, the Board also 

published comment 4(b)(2)–1, which 

provided two examples of service 

charges assessed on asset accounts with 

tied overdraft lines of credit that are not 

finance charges.123 In 1998, the Board 

revised comment 4(b)(2)–1 to clarify 

that a service charge on a checking or 

other transaction account with a credit 

feature is a finance charge only if the 

charge exceeds the charge for a similar 

account without a credit feature.124

The CFPA generally granted 

rulemaking authority under the TILA 

and transferred primary oversight of 

Regulation Z to the CFPB. Subsequently, 

the CFPB renumbered § 226.4 to 

§ 1026.4.125 In 2016, the CFPB amended 

both § 1026.4(b)(2) and comment 

4(b)(2)–1 to exclude prepaid accounts as 

defined in § 1026.61.126 As part of that 

rulemaking, the CFPB provided detailed 

guidance in comment 4(b)(11)(ii) 

regarding how fees on prepaid accounts 

with a covered separate credit feature 

accessible by a hybrid prepaid-credit 

card should be compared to fees 

imposed on prepaid accounts without a 

covered separate credit feature. This 

guidance was more detailed and more 

restrictive than the guidance provided 

under § 1026.4(b)(2) with regard to 

checking and transaction accounts other 

than prepaid accounts.127 As part of this 

guidance, the CFPB noted that the per 

transaction fee for a credit extension in 

the course of a transaction from a 

covered separate credit feature cannot 

be compared to a fee for declining to 

pay a transaction that is imposed on a 

prepaid account without such a credit 

feature in the same prepaid account 

program.128 The CFPB was concerned 

about possible evasion of the rule, 

noting that many prepaid cardholders 

who wish to use covered separate credit 

features may not have other asset 

accounts or savings accounts from 

which they can transfer funds to prevent 

an overdraft on the prepaid account in 

the course of authorizing, settling, or 

otherwise completing a transaction to 

obtain goods or services, obtain cash, or 

conduct person-to-person (P2P) 

transfers.129 As a result, if such a 

comparison were permitted, card issuers 

could charge a substantial fee to transfer 

funds from the checking account or 

savings account during the course of a 

transaction using the prepaid account 

(which many prepaid cardholders who 

wish to use covered separate credit 

features may not be able to use as a 

practical matter) and then charge that 

same substantial per transactions fee for 

credit drawn or transferred from the 

covered separate credit feature during 

the course of a transaction without such 

fee being considered a finance 

charge.130 The CFPB thus concluded 

that it was appropriate to limit the 

comparable fee in this case to per 

transaction fees imposed on prepaid 

accounts for transactions that access 

funds in the prepaid account in the 

same prepaid account program that does 

not have a covered separate credit 

feature because all prepaid 

accountholders can use prepaid 

accounts to make transactions that 

access available funds in the prepaid 

account and thus these types of 

transactions are available to all prepaid 

accountholders.131

i. What is changing? 

The proposal would revise 

§ 1026.4(b)(2) and comment 4(b)(2)–1 to 

provide that § 1026.4(b)(2) does not 

apply to ‘‘covered asset accounts’’ as 

defined in § 1026.62. This proposed 

exception would mirror the exception 

created by the CFPB’s Prepaid Rule. 

The proposal also would add a 

paragraph at § 1026.4(b)(12). Proposed 

§ 1026.4(b)(12) would add examples of 

finance charges with regard to covered 

asset accounts, as defined in proposed 

§ 1026.62(b)(2). These proposed changes 

would broaden the definition of 


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132Under the proposal, fees would continue to be 

excluded from the definition of finance charge if 

they are described in existing § 1026.4(c) through 

(e). 

133 74 FR 5263 (Jan. 29, 2009). As discussed 

above, the purposes of TILA are to provide a 

meaningful disclosure of credit terms to enable 

consumers to compare credit terms available in the 

marketplace more readily and avoid the uninformed 

use of credit and to protect consumers against 

inaccurate and unfair credit billing and credit card 

practices. 15 U.S.C. 1601(a). 

134Some or all of the fees described in proposed 

§ 1026.4(b)(12)(iii)(A) through (C) are sometimes 

referred to as ‘‘overdraft fees,’’ ‘‘declination fees,’’ 

or ‘‘NSF fees.’’ Proposed § 1026.4(b)(12)(iii)(A) 

through (C) are broadly inclusive of the types of fees 

described therein, regardless of how such fees are 

labeled. 

‘‘finance charge’’ for covered asset 

accounts to apply the applicable rules to 

such accounts so that the full cost of 

credit is more accurately disclosed. The 

effect of the proposed changes would be 

to limit the existing exclusion in 

§ 1026.4(b)(2) such that nearly all 

service, transaction, activity, and 

carrying charges imposed on covered 

asset accounts, including, in particular, 

fees commonly known as ‘‘transfer fees’’ 

for moving funds from overdraft lines of 

credit to covered asset accounts, would 

be ‘‘finance charges’’ under Regulation 

Z unless subject to another exclusion or 

limitation.132

ii. Charges Imposed on Credit Accounts 

Required by § 1026.62(c) 

(§ 1026.4(b)(12)(i)) 

Proposed § 1026.4(b)(12)(i) would 

specify that any service, transaction, 

activity, or carrying charge imposed on 

the separate credit account required by 

§ 1026.62(c) is a finance charge. That is, 

the fees described in proposed 

§ 1026.4(b)(12)(i) would be finance 

charges without regard to a comparison 

to fees for a comparable cash 

transaction. 

Under § 1026.62(c), the required 

credit account exists for the purpose of 

providing credit. Therefore, service, 

transaction, activity, or carrying charges 

on this separate credit account are, per 

the finance charge definition in 

§ 1026.4(a), generally imposed as an 

incident to or a condition of the 

extension of credit, separate and distinct 

from any such fees applied to a separate 

checking or other transaction account. 

Because of the nature of the credit 

account, it would be difficult or 

impossible to determine which, if any, 

charge applied to a checking or other 

asset account is a charge for a similar or 

comparable cash transaction for the 

purpose of § 1026.4(a). As with the 

Board’s analysis in the 2009 amendment 

regarding credit card fee transactions, 

there is not necessarily a single or 

standard checking account to use for fee 

comparison. For example, there may be 

different fees applied to a checking 

account with a low balance minimum 

versus another type of checking 

account. Thus, it would be difficult in 

many cases to say which checking 

account provides the appropriate fee for 

comparison. Even assuming a 

comparable transaction could be 

identified, the disclosure a consumer 

might receive would depend on whether 

the creditor provides other asset 

accounts and imposes service, 

transaction, activity, or carrying charges 

on those accounts and whether the fees 

applied to those accounts exceed the 

fees for those on the separate credit 

account. As with the distinctions 

analyzed by the Board in the 2009 

amendment, it is not clear that these 

distinctions are meaningful to 

consumers.133 The CFPB has thus 

preliminarily determined that any 

service, transaction, activity, or carrying 

charge imposed on the separate credit 

account required by § 1026.62(c) would 

be a finance charge, except for charges 

specifically excluded by paragraphs (c) 

through (e) of section 1026.4. 

iii. Charges Imposed on Covered Asset 

Accounts (§ 1026.4(b)(12)(ii)) 

Proposed § 1026.4(b)(12)(ii) would 

specify that any service, transaction, 

activity, or carrying charge imposed on 

the covered asset account is a finance 

charge to the extent that the charge 

exceeds a comparable charge imposed 

on a checking or other transaction 

account that does not have covered 

overdraft credit tied to it. That is, any 

such charge is a finance charge to the 

extent that it exceeds a comparable 

charge imposed on a checking or other 

transaction account that is not a covered 

asset account. This provision would 

largely mirror existing § 1026.4(b)(2) but 

with adjustments for covered asset 

accounts. 

iv. Examples of Charges Imposed on 

Covered Asset Accounts 

(§ 1026.4(b)(12)(iii)(A) Through (C)) 

Proposed § 1026.4(b)(12)(iii) would 

describe certain charges on a checking 

or other transaction account that does 

not have covered overdraft credit tied to 

it that are not comparable to charges 

imposed on a covered asset account, 

which, by definition, does have covered 

overdraft credit tied to it. These charges 

would therefore not be permitted to be 

subtracted from charges applied to the 

covered asset account for the purpose of 

determining whether or not a charge on 

the covered asset account is a finance 

charge. 

Proposed § 1026.4(b)(12)(iii)(A) would 

exclude from the determination of a 

finance charge comparison of a charge 

for authorizing or paying a transaction 

that overdraws the checking or other 

transaction account that does not have 

covered overdraft credit. Proposed 

§ 1026.4(b)(12)(iii)(B) would exclude 

from the determination of a finance 

charge comparison of a charge for 

declining to authorize or pay a 

transaction, and proposed 

§ 1026.4(b)(12)(iii)(C) would exclude 

from the determination of a finance 

charge comparison of a charge for 

returning a transaction unpaid.134 Thus, 

under proposed § 1026.4(b)(12)(iii)(A) 

through (C), a very large financial 

institution may impose a service fee on 

a covered asset account when the 

institution transfers funds into the 

account from a covered overdraft credit 

account to cover a transaction that 

would otherwise overdraw the covered 

asset account. The institution may also 

impose a fee on a checking or other 

transaction account that does not have 

covered overdraft credit (i.e., is not a 

covered asset account) when the 

institution authorizes or pays a 

transaction that would otherwise 

overdraw the checking or other 

transaction account, declines to 

authorize or pay a transaction that 

would otherwise overdraw the checking 

or other transaction account, or returns 

unpaid a transaction that would 

otherwise overdraw the checking or 

other transaction account. However, the 

fee applied to a checking or other 

transaction account that does not have 

covered overdraft credit may not be 

compared to the fee on a covered asset 

account for the transfer of funds to cover 

a transaction. Accordingly, under 

proposed § 1026.4(b)(12)(iii)(A) through 

(C), the full amount of the service fee on 

a covered asset account when a very 

large financial institution transfers 

funds into the account from a covered 

overdraft credit account to cover a 

transaction that would otherwise 

overdraw the covered asset account 

would be a finance charge. Taken 

together, these three provisions would 

clarify that the service, transaction, 

activity, or carrying charges imposed on 

covered asset accounts may not, for the 

purposes of determining whether such 

fees are ‘‘finance charges,’’ be reduced 

by fees that relate to granting or denying 

a transaction that would overdraw an 

account without covered overdraft 

credit. 

The CFPB has made the preliminary 

determination to exclude from the 

determination of a finance charge these 

categories of charges for two reasons. 


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13866 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

135CFPB 2017 Data Point at 5; CFPB 2014 Data 

Point at 12. 

136CFPB 2017 Data Point at 5. 

137See id. at 5–6. 

138 74 FR 5212, 5214 (Jan. 29, 2009); 74 FR 59033, 

59035 (Nov. 17, 2009); Steve Cocheo, Follow the 

Bouncing Check, 95 ABA Banking J. 32, at 34 (Apr. 

2003) (Cocheo 2003). 

139See Peter G. Weinstock & Stephanie E. Dreyer, 

Overdraft Protection Programs: The Emerging 

Battleground for Bankers and Consumer Advocates, 

121 Banking L. J. 791, at 795 (2004) (‘‘Banks have 

been paying NSF items as a service to customers on 

a case-by-case basis for decades.’’); see also Cocheo 

2003 at 34 (‘‘Our overdraft program formalizes the 

traditional courtesy of paying insufficient 

checks. . . .’’) (quoting Gaynell Lawson, Executive 

Vice-President and Chief Financial Officer of 

Citizens Bank of Blount County). 

140See Public Law 90–321, 82 Stat. 146 (May 29, 

1968), codified as amended at 15 U.S.C. 1601 et seq. 

First, these types of charges are charges 

associated with decisions regarding 

whether or not to extend credit. The 

charges described in proposed 

§ 1026.4(b)(12)(iii)(A) are applied if 

credit is extended; the charges described 

in proposed § 1026.4(b)(12)(iii)(B) and 

(C) are applied if credit is denied. As 

such, they are not charges associated 

with cash transactions, comparable or 

otherwise, and should not be compared 

to or subtracted from fees associated 

with covered overdraft credit. 

Additionally, the charges described in 

proposed § 1026.4(b)(12)(iii)(B) may be 

described as a penalty, while the 

charges described in proposed 

§ 1026.4(b)(12)(iii)(C) may be described 

as a service charge. In neither case are 

the charges of a type payable in 

comparable cash transactions. 

v. Additional Examples of Charges 

Imposed on Covered Asset Accounts 

(§ 1026.4(b)(12)(iii)(D) and (E)) 

Proposed § 1026.4(b)(12)(iii)(D) would 

exclude, for purposes of determining 

whether the fee is a finance charge, 

comparison of a charge for transferring 

funds from any credit account into a 

checking or other transaction account 

that does not have covered overdraft 

credit. Proposed § 1026.4(b)(12)(iii)(E) 

would exclude, for purposes of 

determining whether the fee is a finance 

charge, comparison of a charge for 

transferring funds from any other asset 

account, such as a savings account, into 

a checking or other transaction account 

that does not have covered overdraft 

credit. Thus, under proposed 

§ 1026.4(b)(12)(iii)(D) and (E), a very 

large financial institution may impose a 

service fee on a covered asset account 

when the institution transfers funds into 

the account from a covered overdraft 

credit account to cover a transaction 

that would otherwise overdraw the 

covered asset account. The institution 

may also impose a fee to transfer funds 

into the checking or other transaction 

account (i.e., an account that is not a 

covered asset account) from any credit 

account or from any other asset account, 

such as a savings account, to cover a 

transaction that would otherwise 

overdraw the checking or other 

transaction account. But the fee applied 

to a checking or other transaction 

account that does not have covered 

overdraft credit may not be compared to 

the fee on a covered asset account for 

the transfer of funds to cover a 

transaction. Accordingly, under 

proposed § 1026.4(b)(12)(iii)(D) and (E), 

the full amount of the service fee on a 

covered asset account when a very large 

financial institution transfers funds into 

the account from a covered overdraft 

credit account to cover a transaction 

that would otherwise overdraw the 

covered asset account would be a 

finance charge. 

The exclusion in proposed 

§ 1026.4(b)(12)(iii)(D) addresses charges 

in connection with an extension of 

credit that is regulated as credit, albeit 

not overdraft credit. Because these are 

charges payable in a credit transaction, 

the CFPB has preliminarily determined 

that these are not charges payable in a 

comparable cash transaction and should 

not be used for comparison in the 

determination of a finance charge. 

The exclusion in proposed 

§ 1026.4(b)(12)(iii)(E) addresses charges 

to transfer funds into a checking or 

other transaction account that is not a 

covered asset account from any other 

asset account to cover a transaction that 

would otherwise overdraw the checking 

or other transaction account. This is 

because the CFPB is concerned about 

the possibility for evasion from the 

requirements of Regulation Z if 

comparison of the charges described in 

§ 1026.4(b)(12)(iii)(E) were to be 

permitted. 

The majority of combined overdraft 

and NSF fees are paid by a small subset 

of consumers. CFPB research found that 

79 percent of combined overdraft and 

NSF fees were paid by 9 percent of 

consumers who paid more than 10 such 

fees per year, incurring a median of 

$380 in these fees in a year.135

Consumers paying more than 20 such 

fees in a year accounted for about 5 

percent of accounts, while paying over 

63 percent of the fees.136

Consumers whose accounts are 

frequently overdrawn are typically more 

financially insecure than those who do 

not overdraw or who do so 

infrequently.137 Accordingly, many 

consumers who overdraft may not have 

other asset accounts or may not have 

sufficient funds in those accounts from 

which they can transfer funds to prevent 

such overdraft. 

If such a comparison were permitted, 

a bank could potentially avoid the 

definition of ‘‘finance charge’’ by 

charging a substantial fee for 

transferring funds into a checking or 

other transaction account that is not a 

covered asset account from any other 

asset account and then charge that same 

substantial amount for any service, 

transaction, activity, or carrying charge 

imposed on the covered asset account. 

By comparing the two substantial fees to 

each other, the amount of the charge on 

the covered asset account would not be 

considered a finance charge. For the 

subset of consumers who pay the 

majority of overdraft and NSF fees, 

however, this comparison of fees would 

be a comparison between a product that 

such consumers can readily access (i.e., 

covered asset accounts) to a product that 

a majority of such consumers may not 

be able to access (i.e., other asset 

accounts) because they do not have such 

accounts or do not have sufficient funds 

in those accounts to easily execute 

transfers. As a result, the CFPB 

preliminarily concludes that a per 

transaction fee for transferring asset 

funds from other asset accounts such as 

a savings account should not be 

compared with (should not be allowed 

to be subtracted from) a service, 

transaction, activity, or carrying charge 

assessed on a covered asset account. 

The CFPB seeks comment on the 

proposed revisions to § 1026.4(b)(2), the 

proposal to add § 1026.4(b)(12), and the 

CFPB’s preliminary conclusions 

regarding comparable cash transactions. 

2. History of the Current § 1026.4(c)(3) 

Exception 

Historically, whenever a consumer 

bounced a check written against a 

deposit account that lacked a credit 

feature, the consumer’s financial 

institution typically returned the check 

unpaid and assessed the consumer an 

NSF fee. In addition, the payee on the 

check might have taken various actions 

against the consumer, such as assessing 

the consumer a late fee or returned item 

fee, reporting the consumer’s payment 

as late to a credit bureau, or bringing 

legal action against the consumer for 

writing a bad check.138 However, 

instead of returning the check unpaid, a 

financial institution, in its discretion, 

might have paid the check into overdraft 

as a courtesy.139

Although Congress did not exempt 

any category of overdraft credit from 

TILA,140 the Board used its exception 

(not its interpretive) authority to create 

a limited exception for this longstanding 

practice when it issued Regulation Z in 


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141 34 FR 2002, 2004 (Feb. 11, 1969); 73 FR 28904, 

28927 (May 19, 2008) (‘‘Historically, if a consumer 

engaged in a transaction that overdrew his or her 

account, depository institutions used their 

discretion on an ad hoc basis to pay the overdraft, 

usually imposing a fee. The Board recognized this 

longstanding practice when it initially adopted 

Regulation Z in 1969 to implement TILA.’’). 

142 34 FR 2002, 2004 (Feb. 11, 1969). 

143 70 FR 29582, 29582 n.1 (May 24, 2005). 

144See 12 CFR 1026.2(a)(17)(i). 

145 42 FR 22360, 22362 (May 3, 1977). 

146 46 FR 20848, 20855 (Apr. 7, 1981). 

147 Id. 

148 Id. 

149 Id. 

150 Id. 

151 In 2016, the CFPB added an additional 

sentence to the end of § 1026.4(c)(3) to clarify that 

the paragraph does not apply to credit offered in 

connection with a prepaid account as defined in 

§ 1026.61. See 81 FR 83934, 84179 (Nov. 22, 2016). 

However, this amendment did not impact the text 

of the portion of § 1026.4(c)(3) adopted in 1981. 

152 74 FR 5212 (Jan. 29, 2009); 81 FR 83934, 

83950–51 (Nov. 22, 2016). 

153Stephen Quinn & William Roberds, The 

Evolution of the Check as a Means of Payment: A 

Historical Survey, 93 Fed. Rsrv. Bank of Atlanta 

Econ. Rev. 1, at 21 (2008). 

154CFPB 2014 Data Point at 17. 

155 81 FR 83934, 83950–51 (Nov. 22, 2016). 

156CFPB 2014 Data Point at 15 tbl.4c. 

157 Id. 

158 42 FR 22360, 22362 (May 3, 1977) (‘‘[Section 

226.4(d) (now section 1026.4(c)(3)] relates only to 

regular demand deposit accounts which carry no 

credit features and in which a bank may 

occasionally, as an accommodation to its customer, 

Continued 

1969.141 Specifically, the Board added 

§ 226.4(d), which provided that ‘‘[a] 

charge imposed by a bank for paying 

checks which overdraw or increase an 

overdraft in a checking account is not a 

finance charge unless the payment of 

such checks and the imposition of such 

finance charge were previously agreed 

upon in writing.’’ 142 A bank providing 

discretionary, check-centric overdraft 

(a.k.a. ‘‘bounce-check protection’’ or 

‘‘courtesy overdraft protection’’ services, 

as noted in later Federal Register 

publications 143) was not a creditor 

subject to Regulation Z because, 

pursuant to this exception, it did not 

impose a finance charge (and otherwise 

did not structure the repayment of 

credit by written agreement in more 

than four installments).144 As Board 

commentary on Regulation Z noted, this 

exception enabled a bank to 

‘‘occasionally, as an accommodation to 

its customer, honor a check which 

inadvertently overdraws that account’’ 

without having to comply with the 

requirements of Regulation Z.145

In 1981, the Board amended 

Regulation Z to, among other things, 

make ‘‘a few minor editorial changes’’ to 

the § 226.4(d) exception.146 Specifically, 

the Board changed the term ‘‘bank’’ to 

‘‘financial institution’’ and the term 

‘‘checks’’ to ‘‘items.’’ 147 The Board 

made these changes ‘‘to reflect the 

ability of financial institutions other 

than banks, such as savings and loan 

associations, to pay items that are 

similar to checks, such as negotiable 

orders of withdrawal, into 

overdraft.’’ 148 Additionally, the Board 

renumbered § 226.4(d) to 

§ 226.4(c)(3).149 By making these ‘‘minor 

editorial changes,’’ the Board stated that 

‘‘[n]o substantive change is intended 

. . . .’’ 150 In other words, the Board did 

not change the purpose of the § 226.4(d) 

exception, which was to allow financial 

institutions to provide consumers with 

courtesy check-centric overdraft 

services without having to comply with 

the requirements of TILA and 

Regulation Z. 

The language from the Board’s 1981 

version of § 226.4(c)(3) remains in effect 

unchanged at § 1026.4(c)(3) in the 

CFPB’s current version of Regulation 

Z.151

3. Proposed Changes to the 

§ 1026.4(c)(3) Exception 

It is the CFPB’s preliminary view that 

the § 1026.4(c)(3) exception is overbroad 

for purposes of the current non-covered 

overdraft market. To address the issue, 

the CFPB proposes to add a new 

sentence to the end of § 1026.4(c)(3) that 

would provide that the paragraph no 

longer applies to ‘‘above breakeven 

overdraft credit’’ as that term is defined 

in proposed § 1026.62. As discussed in 

part V.A, the CFPB proposes to apply its 

proposed § 1026.4(c)(3) amendment 

only to very large financial institutions. 

The CFPB proposes to define the term 

‘‘above breakeven overdraft credit’’ at 

§ 1026.62(b)(1) to mean overdraft credit 

extended by a very large financial 

institution to pay a transaction on 

which, as an incident to or a condition 

of the overdraft credit, the very large 

financial institution imposes a charge or 

combination of charges exceeding the 

average of its costs and charge-off losses 

for providing non-covered overdraft 

credit as described in § 1026.62(d). The 

CFPB proposes to establish above 

breakeven overdraft credit by reference 

to the average of a very large financial 

institution’s cost and charge off losses 

for providing non-covered overdraft 

credit rather than the cost and estimated 

charge-off losses for providing noncovered overdraft credit for each 

separate transaction because the CFPB 

has preliminarily determined, based on 

its supervisory experience, that many 

financial institutions currently do not 

track their costs and charge-off losses at 

the transaction level, but generally can 

calculate their average costs and chargeoff losses at the product level. Further, 

the CFPB expects that an institutionwide calculation would be easier for 

very large financial institutions to 

administer. 

The CFPB is proposing these changes 

for several independent reasons. 

First, the market for non-covered 

overdraft credit has changed in 

important ways—many financial 

institutions have automated their noncovered overdraft programs and 

expanded them to cover non-check 

transactions, while also adjusting their 

account pricing structure to more 

heavily emphasize overdraft fees.152

These changes have caused the market 

for non-covered overdraft credit to move 

away from the historical courtesy model 

to the point that, for a significant 

number of consumers, non-covered 

overdraft credit is no longer an 

occasional accommodation for 

inadvertent overdrafts. 

Unlike in 1969, when checks made up 

the lion’s share of overdraft 

transactions,153 recent CFPB analysis of 

account data from a number of large 

banks showed that on average overall 

only 10.36 percent of monthly debit 

transactions occurred by check, while 

62.14 percent occurred by debit card 

(both one-time and recurring), 12.14 

percent occurred by ACH, 6.43 percent 

occurred by ATM, 0.71 percent occurred 

by bank teller, and the remainder 

occurred by other means.154

This shift away from check 

transactions is significant because, as 

financial institutions have automated 

their non-covered overdraft programs 

and expanded them to cover non-check 

transactions, the sheer volume of 

overdraft transactions and associated 

fees has increased.155 This trend 

especially is pronounced with respect to 

debit cards, where CFPB research shows 

that incidence of overdraft increases for 

consumers who use debit cards. For 

example, CFPB research shows that 92.3 

percent of accounts that do not use debit 

cards have no overdrafts in a year of 

account use and only 0.6 percent of 

such accounts incur more than 10 

overdrafts per year.156 In contrast, 

accounts that use their debit cards more 

than 30 times per month have the 

lowest percentage of accounts with no 

overdraft (51.2 percent) and the highest 

percentage of accounts that overdraft 

more than 10 times per year (18.0 

percent).157 In other words, for many 

consumers who use debit cards 

frequently, non-covered overdraft credit 

services are no longer provided as an 

occasional accommodation.158


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honor a check which inadvertently overdraws that 

account.’’). 

159 74 FR 5212, 5217 (Jan. 29, 2009). 

160See CFPB October 2023 Data Spotlight. 

161This was not always the case. Historically, 

financial institutions charged no more for honoring 

an overdrawing check through non-covered 

overdraft credit than they did for returning the 

check unpaid. For example, a 1976 report on bank 

fees presented the results of a survey of banks in 

New York and Washington, DC. Of the 41 banks 

surveyed, 39 charged overdraft fees that were equal 

to or less than the amount of their NSF fees. See 

Senate Staff Report at 10–11. 

162See 81 FR 83934, 83950–51 (Nov. 22, 2016); 

70 FR 29582, 29583 (May 24, 2005); CFPB 2013 

White Paper at 16–17; CFPB Winter 2015 Highlight 

at 8–9; FDIC 2018 Highlight at 12; FDIC 2019 

Highlight at 2–3. 

163 74 FR 59033, 59048 (Nov. 17, 2009). 

164CFPB 2017 Data Point at 16 tbl. 2. 

165CFPB 2013 White Paper at 52; CFPB 2014 Data 

Point at 5. 

166Press Release, CFPB, CFPB Finds Small Debit 

Purchases Lead to Expensive Overdraft Charges 

(July 31, 2014), https://www.consumerfinance.gov/ 

about-us/newsroom/cfpb-finds-small-debitpurchases-lead-to-expensive-overdraft-charges/. 

Recent supervisory data the CFPB has collected, 

reflecting transactions from 2022 and 2023, found 

that the median debit card overdraft resulted in an 

overdraft credit extension of approximately $25.50. 

Assuming a credit extension of $25.50, the $35 

overdraft fee typical of very large financial 

institutions, and a three-day repayment period 

results in a similar APR of over 16,000 percent. 

167CFPB, Payday Loans and Deposit Advance 

Products, at 9 (Apr. 24, 2013), https://

files.consumerfinance.gov/f/201304_cfpb_paydaydap-whitepaper.pdf; CFPB, Ask CFPB: What is a 

payday loan?, https://www.consumerfinance.gov/ 

ask-cfpb/what-is-a-payday-loan-en-1567/ (last 

reviewed Jan. 17, 2022). 

Moreover, financial institutions today 

routinely extend overdraft credit in 

circumstances where they stand to 

generate more direct revenue from 

extending overdraft credit to cover a 

transaction than they would from 

declining it (because, for example, 

consumers are rarely charged NSF fees 

for declined debit card transactions,159

and nearly two-thirds of banks with 

over $10 billion in assets have 

eliminated NSF fees 160).161 As a result 

of these changes, non-covered overdraft 

programs now generate a substantial 

portion of the direct fee revenue that 

many financial institutions make from 

checking accounts (and much of the 

total revenue that financial institutions 

make from low-balance accounts), 

which has encouraged some financial 

institutions to promote consumers’ use 

of non-covered overdraft credit and/or 

to calibrate their systems to increase 

overdraft fee revenue.162 This shift 

represents a significant departure from 

the historical courtesy model, which 

provided an accommodation to 

consumers for the occasional 

inadvertent overdraft. 

The proposed changes described in 

this section would return the exception 

to its original conception—excepting 

overdraft services from Regulation Z 

when offered as a courtesy or 

accommodation to customers—while 

adapting it to fit within the modern 

payments system. The concept of a 

courtesy or an accommodation is the 

provision of a service primarily for the 

convenience of a customer. A credit 

product that produces large amounts of 

revenue and profit, and is provided to 

many people who may not want the 

service, is not consistent with the 

concept of providing an additional 

service as a courtesy. The CFPB 

preliminarily finds that, where a 

financial institution sets its overdraft 

fees at or below its breakeven point, it 

provides a courtesy service to 

consumers who overdraw their 

accounts. Conversely, where a financial 

institution sets its overdraft fees above 

its breakeven point, and profits from 

those fees, it cannot be said to be 

providing a courtesy. The CFPB has 

preliminarily determined that the 

§ 1026.4(c)(3) exception should 

continue to apply to overdraft fees set at 

or below the breakeven point, so that 

very large financial institutions have the 

option to recover their costs and losses 

associated with providing non-covered 

overdraft credit to consumers (without 

having to comply with Regulation Z), 

and thus, are not disincentivized from 

providing non-covered overdraft to 

consumers as a convenience. 

In addition to returning the 

§ 1026.4(c)(3) exception to its original 

courtesy conception, an independent 

justification for the proposed 

amendments to § 1026.4(c)(3) is that 

they would further TILA’s purposes of 

promoting the informed use of credit 

and comparison shopping across credit 

products. Currently, most non-covered 

overdraft credit is subject to Regulations 

DD and E. Although Regulation DD and 

Regulation E require certain disclosures 

for overdraft services, neither regulation 

requires that such non-covered overdraft 

credit be disclosed as a credit product. 

Instead, both regulations use terms like 

overdraft fees, overdraft practices, or 

overdraft services that tend to obscure 

the fact that financial institutions are 

providing consumers a credit product. 

Applying the Regulation Z regulatory 

framework would benefit consumers by 

ensuring that above breakeven overdraft 

credit is disclosed as a credit product 

and treated like other credit products. 

Treating above breakeven overdraft 

credit like other credit would benefit 

consumers by helping them understand 

that they are entering into a contract for 

a credit product provided by a creditor. 

Unlike the disclosures required under 

Regulation DD and Regulation E, the 

disclosures required by Regulation Z are 

designed to set forth contractual terms 

for credit products clearly. Providing 

such disclosures will help promote the 

informed use of credit. In addition, 

treating above breakeven overdraft 

credit like other credit would benefit 

consumers by aligning the disclosures 

for such credit with other credit types 

and by applying Regulation Z’s 

substantive credit protections 

consistently across similar credit 

products. 

Further, disclosing above breakeven 

overdraft credit under the Regulation Z 

regulatory framework would make it 

easier for consumers to compare the cost 

of such credit with the cost of other 

credit products, such as linked credit 

cards, because financial institutions 

would present the credit terms for above 

breakeven overdraft credit in the same 

form that creditors present the credit 

terms of other credit products. In its 

November 2009 rulemaking finalizing 

the current Regulation E opt-in rule, the 

Board acknowledged that, based on its 

own consumer testing, consumers are 

interested in receiving more information 

about alternatives to non-covered 

overdraft credit services on ATM and 

one-time debit card transactions prior to 

deciding whether or not to opt in to 

such services.163 Even though 

consumers generally are interested in 

alternatives to non-covered overdraft 

credit services, some consumers, 

including consumers who may even 

have alternative credit available to 

them,164 continue to be frequent users of 

non-covered overdraft credit services 

despite its higher cost relative to other 

forms of credit. For example, CFPB 

research found that in 2012 the median 

overdraft fee was $34, the median size 

of a debit card transaction incurring an 

overdraft fee was $24, and that the 

majority of non-covered overdraft credit 

transactions were repaid within three 

days.165 Putting these figures in lending 

terms, the annual percentage rate (APR) 

for such a non-covered overdraft credit 

transaction would be 17,000 percent (if 

transaction fees were included in the 

APR calculation).166 By comparison, 

CFPB research found that the APR for a 

typical payday loan was 391 percent 

and APRs on credit cards can range 

between 12 and 30 percent.167 The fact 

that frequent overdrafters continue to 

use non-covered overdraft credit 

services despite its higher cost relative 

to other credit suggests that some 

frequent overdrafters have difficulty 

comparing non-covered overdraft credit 

services with available alternatives. 

Disclosing above breakeven overdraft 

credit services under the Regulation Z 

regulatory framework would promote 


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168Press Release, CFPB, CFPB Unveils Prototypes 

of ‘‘Know Before You Owe’’ Overdraft Disclosure 

Designed to Make Costs and Risks Easier to 

Understand (Aug. 4, 2017), https://

www.consumerfinance.gov/about-us/newsroom/ 

cfpb-unveils-prototypes-know-you-owe-overdraftdisclosure-designed-make-costs-and-risks-easierunderstand/. 

the informed use of credit by ensuring 

that credit terms were disclosed 

consistently across competing credit 

products, thereby helping consumers 

compare such credit with alternative 

credit options. 

Moreover, the CFPB expects that 

applying the Regulation Z regulatory 

framework to above breakeven overdraft 

credit services would benefit consumers 

by applying the regulation’s existing 

substantive protections to such credit 

services. For example, the CFPB’s 

proposal, as discussed in additional 

detail in this notice, would apply the 

due date requirement in 

1026.7(b)(11)(i)(A), the offset 

prohibitions in § 1026.12(d)(1), and the 

ability to pay provisions in § 1026.51 to 

covered overdraft credit accounts 

(including credit that currently is noncovered above breakeven overdraft 

credit) that can be accessed by a hybrid 

debit-credit card. Therefore, applying 

Regulation Z to above breakeven 

overdraft credit would prohibit very 

large financial institutions from 

immediately taking funds from any 

incoming deposit in repayment of the 

consumer’s overdraft balance, would 

require very large financial institutions 

to establish due dates on the same day 

of each billing cycle, and would require 

very large financial institutions to assess 

the consumer’s ability to pay for such 

credit—all protections that the current 

Regulation DD and Regulation E 

regulatory frameworks do not provide. 

The CFPB acknowledges that the 

current § 1026.4(c)(3) exclusion has 

existed in its present form for decades 

and that very large financial institutions 

have undertaken efforts to ensure that 

their non-covered overdraft credit 

services comply with Regulations DD 

and E. The CFPB also recognizes that 

some consumers have come to rely on 

the availability of non-covered overdraft 

credit. The CFPB’s proposal reflects, in 

part, an effort to balance these reliance 

interests against the other 

considerations discussed above in this 

section. The proposed changes to 

§ 1026.4(c)(3) would require very large 

financial institutions to comply with 

Regulation Z when providing above 

breakeven overdraft credit services, but 

would allow them to continue to 

comply with Regulations DD and E 

when providing non-covered overdraft 

credit services at or below breakeven 

pricing. Thus, a very large financial 

institution that has invested in 

compliance with Regulations DD and E 

could maintain its current processes for 

providing consumers with non-covered 

overdraft credit so long as it priced such 

credit at or below breakeven pricing. 

i. Alternatives to the Proposed 

§ 1026.4(c)(3) Amendment Considered 

During the development of its 

proposal, the CFPB considered 

alternatives to its proposed amendment 

to § 1026.4(c)(3) including (1) striking 

§ 1026.4(c)(3) from Regulation Z in its 

entirety and (2) updating the opt-in 

disclosure requirements at § 1005.17 of 

Regulation E in a manner that would 

better disclose the costs associated with 

authorizing non-covered overdraft 

protection for ATM and debit card 

transactions.168

With respect to the first alternative, 

the CFPB has preliminarily determined 

that it should not eliminate all noncovered overdraft credit. The CFPB 

believes that the proposed amendment 

to § 1026.4(c)(3) is preferable because it 

would address the CFPB’s concerns 

relating to consumers’ informed use of 

above breakeven overdraft credit, 

including a consumer’s ability to 

compare competing credit offers, and 

apply other substantive protections, 

including ability to pay requirements 

and offset restrictions, while allowing 

very large financial institutions to still 

offer non-covered overdraft credit as a 

courtesy if they chose to do so. 

With respect to the second alternative, 

the CFPB preliminarily determined that 

Regulation E opt-in disclosures would 

not communicate the cost of above 

breakeven overdraft credit as effectively 

as Regulation Z disclosures. As 

discussed above, applying Regulation Z 

will ensure that above breakeven 

overdraft credit is disclosed as a credit 

product and treated like other credit 

products. In addition, Regulation E 

disclosures distinguish between 

overdraft transactions completed via 

electronic fund transfers and overdraft 

transactions completed via other funds 

transfer methods (such as checks), 

whereas Regulation Z disclosures would 

apply identically to above breakeven 

overdraft transactions regardless of fund 

transfer method. Modifying the opt-in 

disclosure requirements at § 1005.17 of 

Regulation E also would not provide 

other substantive protections available 

through Regulation Z, such as the ability 

to pay requirements and the offset 

prohibition discussed above. These 

substantive protections are important. 

For example, by requiring financial 

institutions to assess consumers’ ability 

to pay, the proposed rule would ensure 

that financial institutions confirm that 

consumers could make the required 

minimum periodic payments under the 

terms of their account based on their 

income or assets and their current 

obligations. As another example, by 

prohibiting offset and requiring the due 

date to be on the same day each month 

for covered overdraft credit accessible 

by a hybrid debit-credit card, the 

proposed rule would give consumers 

more time to repay overdraft credit and 

greater control over how to structure 

those repayments. Therefore, the CFPB 

preliminarily believes that its proposal 

better protects consumers than an 

approach that merely updates the opt-in 

disclosure requirements at § 1005.17 of 

Regulation E. 

ii. How To Calculate Whether Overdraft 

Credit Is Above Breakeven Overdraft 

Credit 

To clarify the circumstances under 

which overdraft credit offered by a very 

large financial institution is ‘‘above 

breakeven overdraft credit’’ for purposes 

of proposed § 1026.62(b)(1), the CFPB 

also proposes to add a paragraph at 

§ 1026.62(d). 

Proposed § 1026.62(d)(1) would 

clarify that overdraft credit offered by a 

very large financial institution is ‘‘above 

breakeven overdraft credit’’ for purposes 

of proposed § 1026.62(b)(1) if the charge 

or combination of charges for such 

credit exceeds the greater of (1) the pro 

rata share of the very large financial 

institution’s annual total direct costs 

and charge-off losses for providing noncovered overdraft credit calculated in 

accordance with § 1026.62(d)(2); or (2) 

an estimate published by the CFPB. 

For purposes of proposed 

§ 1026.62(d)(1), a ‘‘combination of 

charges’’ would include all revenue 

received in connection with an 

overdraft transaction when determining 

whether the charges for that transaction 

exceed its average costs and charge-off 

losses for providing non-covered 

overdraft credit, including any extended 

or sustained overdraft fees, any interest 

charges on outstanding overdraft 

balances, and any other payments the 

very large financial institution receives 

in connection with an overdraft 

transaction or transactions. 

The approach outlined in proposed 

§ 1026.62(d)(1) would provide a very 

large financial institution with two 

methods for determining whether its 

current charge for an overdraft 

transaction exceeds the average of its 

costs and charge-off losses for providing 

non-covered overdraft credit—the 

breakeven standard described at 

proposed § 1026.62(d)(1)(i) and the 

benchmark fee described at proposed 


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13870 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

169CFPB, Discretionary Overdraft and NSF 

Practices at Very Large Financial Institutions (Jan. 

2024), https://files.consumerfinance.gov/f/ 

documents/cfpb_overdraft-nsf-practices-very-largefinancial-institutions_2024-01.pdf (CFPB 2024 

Overdraft NSF Report). 

§ 1026.62(d)(1)(ii). To the extent that a 

very large financial institution does not 

determine or prefers not to calculate its 

average costs and charge-off losses for 

providing non-covered overdraft credit 

using the breakeven standard described 

at proposed § 1026.62(d)(1)(i), the 

proposal would permit the very large 

financial institution to determine 

whether it is offering above breakeven 

overdraft credit based solely on the 

benchmark fee at proposed 

§ 1026.62(d)(1)(ii). The CFPB has 

preliminarily determined that this 

approach would decrease compliance 

costs for some very large financial 

institutions by providing them with a 

simple bright-line method for 

determining whether the overdraft 

credit they extend is above breakeven 

overdraft credit. Other very large 

financial institutions would be 

permitted the flexibility to calculate on 

their own whether the overdraft credit 

they extend is above breakeven pricing. 

To employ the breakeven standard 

described at proposed § 1026.62(d)(1)(i), 

a very large financial institution would 

determine its total direct costs and 

charge-off losses for providing noncovered overdraft credit to all accounts 

open at any point during the previous 

12 months and then divide that figure 

by the total number of non-covered 

overdraft transactions attributable to 

those accounts occurring the previous 

12 months. The CFPB proposes to use 

figures from the prior 12 months 

because (1) reviewing annualized data 

would even out any seasonal variations 

that could occur with a shorter review 

period; (2) very large financial 

institutions likely already collect 

annualized cost and loss data; and (3) 

reviewing annualized data would 

require very large financial institutions 

to make average cost and loss 

calculations only once per year. When 

determining the total number of noncovered overdraft transactions occurring 

the previous 12 months, the financial 

institution may account for non-covered 

overdraft transactions that do not incur 

fees, including those that do not incur 

fees consistent with fee waiver policies, 

by excluding from its transaction total 

any non-covered overdraft transaction 

for which the financial institution either 

refunded or did not assess any fee or 

charge. The CFPB believes that allowing 

very large financial institutions to adjust 

their transaction totals to account for 

overdraft transactions that do not incur 

fees would give financial institutions 

flexibility to maintain or to implement 

fee waiver policies. 

Under the proposal, when a very large 

financial institution applies the 

breakeven standard either for the first 

time or after transitioning from the 

benchmark fee described at proposed 

§ 1026.62(d)(1)(ii), it may include direct 

costs and charge-off losses from any 

transaction that was a non-covered 

overdraft transaction during the prior 

12-months even if, applying the 

breakeven standard, it would have been 

considered above breakeven overdraft 

credit during that period. When 

determining the total number of noncovered overdraft transactions occurring 

the previous 12 months, a very large 

financial institution applying the 

breakeven standard either for the first 

time or after transitioning from the 

benchmark fee described at proposed 

§ 1026.62(d)(1)(ii) also may exclude 

from its transaction total any noncovered overdraft transaction for which 

the financial institution either refunded 

or did not assess any fee or charge. 

To provide additional guidance 

regarding the types of costs and chargeoff losses a very large financial 

institution could consider when 

calculating the breakeven standard, the 

CFPB also proposes to add a paragraph 

at § 1026.62(d)(2). Proposed 

§ 1026.62(d)(2) would provide that, 

when calculating the breakeven 

standard, a very large financial 

institution could consider costs and 

charge-off losses that are specifically 

traceable to its provision of non-covered 

overdraft credit in the previous year. 

The CFPB proposes to allow very large 

financial institutions to consider only 

costs and charge-off losses that are 

specifically traceable to their provision 

of non-covered overdraft credit to 

prevent very large financial institutions 

from employing the breakeven standard 

in a manner that would circumvent 

§ 1026.62(b)(1). For example, without 

the specifically traceable restriction, 

very large financial institutions might 

include in their average cost and loss 

calculations costs and charge-off losses 

that are more appropriately attributable 

either to other segments of their deposit 

business or to their deposit business 

overhead. 

Based on its previous experience 

collecting overdraft cost data from 

financial institutions, the CFPB has 

preliminarily determined that 

specifically traceable costs and chargeoff losses would include a very large 

financial institution’s cost of funds for 

providing non-covered overdraft credit, 

its charge-off losses for non-covered 

overdraft credit, and any operational 

costs that are directly attributable to its 

non-covered overdraft program. For 

example, if a very large financial 

institution uses issue tagging in its call 

center to reasonably and accurately 

gauge the number of customer service 

calls it receives relating to non-covered 

overdraft credit, direct costs relating to 

those customer service calls would be 

specifically traceable and the very large 

financial institution could include the 

direct costs relating to those calls in its 

calculation of costs under the breakeven 

standard. Conversely, the CFPB 

preliminarily believes that both general 

overhead costs and charge-off losses 

resulting from unauthorized use, EFT 

errors, billing errors, returned deposit 

items, or rescinded provisional credit 

are not specifically traceable to a very 

large financial institution’s provision of 

non-covered overdraft credit and must 

not be included in its calculation of 

costs under the breakeven standard. For 

example, if a very large financial 

institution purchases office equipment 

to support its depository business 

generally, such costs would not be 

specifically traceable to its provision of 

overdraft services and the very large 

financial institution could not include 

the cost of such office equipment in its 

calculation of costs under the breakeven 

standard. 

Under the benchmark fee approach 

outlined at proposed § 1026.62(d)(1)(ii), 

a very large financial institution may 

presume that any charge or combination 

of charges it imposes for paying a 

transaction that overdraws an account 

does not exceed its costs and charge-off 

losses for providing non-covered 

overdraft credit if the charge or 

combination of charges is less than or 

equal to any benchmark fee established 

by the CFPB. The CFPB is considering 

four alternatives for this benchmark 

fee—$3, $6, $7, and $14. The CFPB 

views each of these options as 

potentially viable because, as discussed 

in additional detail in the following 

paragraphs, they each apply the 

calculation method proposed by the 

breakeven standard to alternative data 

sets and/or alternative approaches for 

calculating the total number of noncovered overdraft transactions. (As 

highlighted at the end of this section, 

the CFPB seeks comment on each of 

these alternatives.) 

The CFPB requested data, 

information, and documents from eight 

financial institutions relating to, among 

other things, their costs and charge-off 

losses for providing non-covered 

overdraft credit in the 2022 calendar 

year.169 Each of these eight financial 

institutions would qualify as very large 

financial institutions for purposes of 


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170 Id. at 4. 

171 Id. 

172 Id. at 8–9. 

173 Id. at 8. 

174 Id. at 9. 

175U.S. Bureau of Labor Stat., Occupational 

Employment and Wage Statistics: May 2022 

National Industry-Specific Occupational 

Employment and Wage Estimates NAICS 5220A1— 

Credit Intermediation and Related Activities (5221 

and 5223 only), https://www.bls.gov/oes/current/ 

naics4_5220A1.htm (last modified Apr. 25, 2023). 

proposed § 1026.62(b)(8) and, 

collectively, these eight institutions 

account for over 30 percent of the total 

assets of very large financial institutions 

and represent a diverse set of geographic 

footprints, asset sizes, and business 

models.170 The CFPB received data from 

all eight institutions, but some 

institutions were unable to provide all 

the requested data at the level of detail 

requested.171 As a result, the CFPB 

referenced data from five financial 

institutions to calculate the four 

alternatives for the proposed benchmark 

fee. 

The CFPB used the same general 

formula to calculate all four of the 

proposed alternative benchmark fees but 

relied on different datapoints to derive 

each fee amount. To calculate each 

benchmark fee, the CFPB first 

determined the total charge-off losses 

(excluding losses attributable to 

unauthorized use, billing errors, 

rescinded provisional credit, returned 

deposit items, and other sources not 

attributable to overdraft transactions) for 

the financial institutions included in its 

estimate calculation and then divided 

that figure by the total number of noncovered overdraft transactions (i.e., 

overdraft transactions currently 

excepted from Regulation Z) in the 

relevant dataset for each estimate. Next, 

the CFPB adjusted this charge-off loss 

per transaction figure by adding to it $1 

per transaction to account for the 

CFPB’s estimate of a financial 

institution’s cost of funds and 

operational costs, which the CFPB 

estimates does not exceed $0.50 per 

transaction each.172 To calculate the 

$0.50 cost of funds figure, the CFPB 

estimated that financial institutions 

would pay interest of 5 percent per year 

to obtain funds and would lend an 

average of $120 to consumers per 

transaction for a period of one month. 

The CFPB preliminarily believes that 

this cost of funds estimate would cover 

most institutions’ costs given that the 

median overdraft amount per 

transaction is $50 and that consumers 

typically repay overdraft transactions 

within three days.173 Based on its 

supervisory and enforcement 

experience, the CFPB preliminarily 

believes that call center expenses 

represent the bulk of the operational 

costs associated with providing noncovered overdraft programs at very large 

financial institutions. To calculate the 

figure for operational costs, the CFPB 

estimated that 10 percent of noncovered overdraft transactions would 

require 10 minutes of a customer service 

representative’s time and that 20 

percent of these customer service 

contacts also would require 10 minutes 

of a supervisor’s time.174 Based on this 

estimate, the CFPB determined that at 

an average hourly wage of $21.07 and 

$30.81 for customer service 

representatives and supervisors in the 

financial sector, respectively, financial 

institutions would incur roughly $0.45 

per non-covered overdraft transaction 

on call center expenses.175 The CFPB 

then rounded this figure up to $0.50 to 

account for other potential operational 

costs. 

To calculate the $3 benchmark fee 

figure, the CFPB first added together the 

charge-off losses for the five financial 

institutions in its sample that produced 

sufficient data to analyze. Next, the 

CFPB calculated a charge-off loss per 

transaction figure by dividing the total 

charge-off loss figure by the total 

number of non-covered overdraft 

transactions paid by those five financial 

institutions. When tallying the total 

number of non-covered overdraft 

transactions for the charge-off loss per 

transaction figure, the CFPB counted 

both non-covered overdraft transactions 

that resulted in an overdraft fee and 

non-covered overdraft transactions that 

did not result in an overdraft fee. This 

approach yielded a charge-off loss per 

transaction figure of $2 per transaction 

after rounding to the nearest dollar. The 

CFPB then added $1 per transaction to 

this figure to account for the CFPB’s 

estimate of a financial institution’s cost 

of funds and operational costs. 

To calculate the $6 benchmark fee 

figure, the CFPB used the same 

approach it used to calculate the $3 

benchmark fee figure, but changed how 

it tallied the total number of noncovered overdraft transactions for the 

charge-off loss per transaction figure. 

Instead of counting both non-covered 

overdraft transactions that resulted in an 

overdraft fee and non-covered overdraft 

transactions that did not result in an 

overdraft fee, the CFPB counted only 

non-covered overdraft transactions that 

resulted in an overdraft fee. This change 

increased the charge-off loss per 

transaction figure to $5 per transaction 

after rounding to the nearest dollar. The 

CFPB then added $1 dollar per 

transaction to this figure to account for 

the CFPB’s estimate of a financial 

institution’s cost of funds and 

operational costs. 

To calculate the $7 benchmark fee 

figure, the CFPB first identified the 

financial institution in its sample with 

the highest charge-off losses. Next, the 

CFPB calculated a charge-off loss per 

transaction figure by dividing total 

charge-off losses by the total number of 

non-covered overdraft transactions paid 

by the financial institution. When 

tallying the total number of non-covered 

overdraft transactions for the charge-off 

loss per transaction figure, the CFPB 

counted both non-covered overdraft 

transactions that resulted in an overdraft 

fee and non-covered overdraft 

transactions that did not result in an 

overdraft fee. This approach yielded a 

charge-off loss per transaction figure of 

$6 per transaction after rounding to the 

nearest dollar. The CFPB then added $1 

dollar per transaction to this figure to 

account for the CFPB’s estimate of a 

financial institution’s cost of funds and 

operational costs. 

To calculate the $14 benchmark fee 

figure, the CFPB used the same 

approach it used to calculate the $7 

benchmark fee figure (i.e., identifying 

the financial institution in its sample 

with the highest charge-off losses) but 

changed how it tallied the total number 

of non-covered overdraft transactions 

for the charge-off loss per transaction 

figure. Instead of counting both noncovered overdraft transactions that 

resulted in an overdraft fee and noncovered overdraft transactions that did 

not result in an overdraft fee, the CFPB 

only counted non-covered overdraft 

transactions that resulted in an overdraft 

fee. This change increased the charge-off 

loss per transaction figure to 

approximately $13 per transaction after 

rounding to the nearest dollar. The 

CFPB then added $1 dollar per 

transaction to this figure to account for 

the CFPB’s estimate of a financial 

institution’s cost of funds and 

operational costs. 

In addition to amending 

§ 1026.4(c)(3), the proposed rule also 

would revise the commentary to 

§ 1026.4(c)(3) by adding proposed 

comment 4(c)(3)–3. Proposed comment 

4(c)(3)–3 would direct readers to see 

proposed § 1026.4(b)(12) for guidance 

on when fees imposed on a covered 

asset account as defined in § 1026.62 are 

finance charges. 

The CFPB seeks comment on all 

aspects of the proposed amendments to 

§ 1026.4(c)(3) and its commentary and 

on its proposal to add § 1026.62(b)(1) 

and (d). In particular, the CFPB seeks 

comment on the following issues: 


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176See 12 CFR 1026.61(b). 

177See 81 FR 83934, 84264 (Nov. 22, 2016). 

178See TILA section 169(a) (15 U.S.C. 1666h(a)) 

and 12 CFR 1026.12(d)(1). 

1. Should the CFPB eliminate the 

§ 1026.4(c)(3) exception for very large 

financial institutions rather than amend 

its application to above breakeven 

overdraft credit? 

2. What alternative formulae, if any, 

should the CFPB consider for 

calculating costs and charge-off losses 

for the breakeven standard and the 

proposed alternative benchmark fee? 

For example, instead of requiring a very 

large financial institution to calculate its 

average costs and charge-off losses for 

non-covered overdraft across its entire 

depository account portfolio, should the 

breakeven standard allow a very large 

financial institution to make separate 

calculations of its average costs and 

charge-off losses for non-covered 

overdraft within subsets of its 

depository account portfolio, such as 

account relationship tiers or average 

account balance ranges? 

3. What are the pros and cons of 

permitting very large financial 

institutions to adjust their non-covered 

overdraft transaction totals to account 

for their fee waiver policies under the 

breakeven standard described at 

proposed § 1026.62(d)(1)(i)? 

4. What alternative approaches, if any, 

should the CFPB consider for 

calculating the breakeven standard 

described at proposed § 1026.62(d)(1)(i)? 

For example, should the CFPB consider 

an approach that allows very large 

financial institutions to estimate their 

costs as a flat dollar amount per 

transaction, as a percentage of their total 

asset account costs, or as a percentage 

of losses? 

5. What alternative figures should the 

CFPB consider, if any, for its cost of 

funds and operational cost estimates? 

6. Which of its proposed benchmark 

fee figures—$3, $6, $7, and $14—should 

the CFPB adopt? What alternative 

figures should the CFPB consider, if 

any? 

7. Should the breakeven standard 

require the same calculation used to 

calculate the benchmark fee? For 

example, if the CFPB finalizes a 

benchmark fee based on all non-covered 

overdraft transactions, whether or not 

the very large financial institution 

collected a fee in connection with the 

transaction, should the breakeven 

standard also require the very large 

financial institution to calculate their 

costs based on all non-covered overdraft 

transactions, whether or not the very 

large financial institution collected a fee 

in connection with the transaction? 

D. Changes to Covered Overdraft Credit 

Offered by Very Large Financial 

Institutions 

As discussed below, the CFPB is 

proposing to change requirements that 

apply to covered overdraft credit offered 

by a very large financial institution by: 

(1) requiring covered overdraft credit to 

be structured as a separate account; (2) 

applying additional credit card 

provisions to covered overdraft credit 

that can be accessed by a hybrid debitcredit card; and (3) applying Regulation 

E’s compulsory-use prohibition to 

covered overdraft credit. For existing 

open-end covered overdraft credit 

products, the proposed new designation 

as covered overdraft credit accounts 

would not impose duplicative or 

additional account opening 

requirements. 

1. Structure of Covered Overdraft Credit 

(§ 1026.62(c)) 

The CFPB proposes in § 1026.62(c) to 

prohibit a very large financial 

institution from structuring covered 

overdraft credit as a negative balance on 

a checking or other transaction account. 

Conversely, the CFPB proposes to 

require such institution to structure 

covered overdraft credit as a separate 

credit account. 

The CFPB has preliminarily 

determined that this structural 

prohibition and requirement will make 

it easier for creditors and consumers to 

implement and understand, 

respectively, covered overdraft credit. 

Regulation Z’s open-end credit rules 

generally address independent credit 

products that do not have substantial 

positive (asset) funds associated with 

them. For example, existing § 1026.11(a) 

generally provides that creditors must 

refund any asset balances on a credit 

account to the consumer within six 

months. 

In contrast, overdraft credit, whether 

or not subject to Regulation Z’s 

requirements, by its nature involves 

both consumer assets and consumer 

credit, the purpose of the latter being to 

cover shortfalls in the former. In the 

context of overdraft credit, the CFPB has 

preliminarily determined that requiring 

the separation of a consumer’s asset 

balance, such as a checking or other 

transaction account that is a ‘‘covered 

asset account’’ as defined in proposed 

§ 1026.62(b)(2), from the consumer’s 

credit balance, such as a credit account 

that is a ‘‘covered overdraft credit 

account’’ as defined in proposed 

§ 1026.62(b)(4), is an appropriate 

addition to Regulation Z under its TILA 

section 105(a) authority, as it is 

necessary or proper to facilitate creditor 

compliance and to effectuate the 

purposes of TILA by helping to avoid 

the uninformed use of credit and 

protecting consumers against inaccurate 

and unfair credit billing and credit card 

practices. Existing § 1026.61(b), which 

was established by the Bureau’s 2016 

Prepaid Final Rule, similarly prohibits 

credit accounts tied to prepaid accounts 

from being structured as negative 

balances on the prepaid accounts and 

requires that the prepaid account and 

the tied credit account be separate.176

Further, commenters that addressed this 

aspect of the Bureau’s 2014 prepaid 

accounts proposed rule universally 

supported the separate asset account 

and credit account structure that the 

2016 rule adopted.177

In the context of overdraft credit that 

is not subject to Regulation Z’s 

requirements, financial institutions 

today typically provide overdraft credit 

to consumers through negative balances 

on consumers’ asset accounts. That is, 

institutions typically provide one 

account to a consumer, which is 

regulated as an asset account such as a 

checking or other transaction account, 

with an asset balance being a positive 

balance in the account and an overdraft 

credit balance being a negative balance 

in the account. Further, institutions 

typically obtain repayment of a 

consumer’s negative overdraft credit 

balance by immediately taking any 

incoming deposit to the asset account, 

such as an electronic direct deposit, as 

repayment (or ‘‘offset’’) of the account’s 

negative balance. For example, if a 

consumer’s asset account balance is a 

negative $100 overdraft credit balance 

and an institution receives a $150 

electronic direct deposit which is to be 

credited to the consumer’s account, the 

institution immediately takes the first 

$100 of the electronic deposit to repay 

the consumer’s overdraft credit balance, 

such that the consumer’s account 

balance subsequent to the institution’s 

receipt of the electronic direct deposit is 

a positive asset balance of $50. 

This practice by institutions of 

immediately taking incoming deposits 

as repayment of overdrafts is known as 

‘‘offset.’’ Regulation Z generally 

prohibits offset in connection with 

covered overdraft credit, as defined in 

proposed 1026.62(b)(3), which can 

typically be accessed by a ‘‘credit card’’ 

as defined in 1026.2(a)(15).178 That is, 

the institution providing the covered 

overdraft credit is generally prohibited 

from immediately taking funds from 


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179While TILA and Regulation Z prohibit offset, 

the statute and regulation do permit periodic 

deductions pursuant to the consumer’s written 

agreement. See 12 CFR 1026.12(d)(3). These 

periodic deductions must occur at regular intervals 

and therefore cannot occur immediately whenever 

deposit funds are received to be credited to the 

consumer’s account. Thus, the permissibility of 

periodic deductions does not change the 

requirement that the institution make it such that 

the consumer has both an overdraft credit balance 

of $100 and an asset balance of $150 at the same 

time. 

incoming deposits in repayment of 

consumers’ outstanding overdraft credit 

balances. Thus, continuing the above 

example of an outstanding overdraft 

credit balance of $100, when Regulation 

Z applies and the institution receives a 

$150 deposit to be credited to the 

consumer’s account, the institution is 

prohibited from immediately taking the 

funds of the incoming deposit, but must 

instead credit the funds to the 

consumer’s asset account and give the 

consumer the use of the funds. In other 

words, when Regulation Z applies, the 

regulation’s offset prohibition requires 

that the institution make it such that the 

consumer has both an overdraft credit 

balance of $100 (the money the 

consumer continues to owe the 

institution) and an asset balance of $150 

(the money from the incoming deposit) 

at the same time.179

Accordingly, the CFPB has 

preliminarily determined that the 

proposed requirement in § 1026.62(c) to 

structure covered overdraft credit as a 

separate credit account that is separate 

from the checking or other transaction 

account will enable institutions to 

comply with the TILA and Regulation Z 

offset prohibition. Specifically, the 

CFPB has preliminarily determined that 

that proposed requirement would 

facilitate compliance with the TILA and 

Regulation Z offset prohibition by 

requiring an institution to retain at the 

same time both an outstanding overdraft 

credit balance and an outstanding asset 

balance for a consumer. Conversely, the 

CFPB has preliminarily determined that 

it is difficult or impossible for an 

institution to maintain both an asset 

(positive) balance and a credit (negative) 

balance at the same time for a consumer 

within a single asset account and that it 

is therefore difficult or impossible for 

the institution to provide overdraft 

credit to the consumer in a manner that 

complies with Regulation Z without 

providing the consumer with an asset 

account and a credit account that are 

separate from each other. 

In addition, the CFPB has 

preliminarily determined that the 

proposed requirement to structure 

covered overdraft credit as a separate 

credit account would (1) protect 

consumers against inaccurate and unfair 

credit billing and credit card practices 

by enabling them to exercise control 

over their funds and (2) avoid the 

uninformed use of credit by enabling 

consumers to better understand their 

asset and credit balances. With respect 

to protecting consumers by enabling 

them to control their funds, the 

requirement will facilitate consumers’ 

ability to control incoming deposits to 

their accounts and use them for 

purposes other than immediately 

repaying an overdraft balance, as the 

offset prohibition requires institutions 

to permit consumers to do. For example, 

continuing the example above, rather 

than the institution immediately using 

the incoming $150 electronic direct 

deposit to eliminate the $100 negative 

overdraft balance in the single account, 

under the proposed separate-account 

structure the consumer might use the 

electronically deposited funds to pay a 

phone or electric bill and to retain the 

unpaid $100 balance in the separate 

credit account (i.e., to repay the credit 

balance to the institution at a later time). 

With respect to avoiding the 

uninformed use of credit by enabling 

consumers to understand their asset and 

credit balances, the requirement for 

separate accounts will enable 

consumers to better monitor their 

account balances and trace how their 

funds are being used through the better 

disclosures (e.g., entries on periodic 

statements) that institutions will 

provide to consumers in compliance 

with Regulations E and DD for asset 

accounts and in compliance with 

Regulation Z, which effectuates the 

informed use of credit, for the credit 

accounts. Continuing the above example 

of a $150 incoming deposit and $100 

overdraft balance, with a separate asset 

account and credit account (as would be 

required by proposed § 1026.62(c)), the 

consumer whose asset account receives 

an electronic direct deposit would see 

disclosed on the periodic statements a 

$150 credit entry to the asset account 

and, at that time, a $150 balance in the 

asset account and a $100 balance in the 

credit account. 

Further, if the consumer were to 

subsequently choose to use the $150 

asset funds to repay the overdraft, the 

consumer would at that later point in 

time see on the statements the following 

data points on the asset account and 

credit account: (1) a debit entry of $100 

to the asset account for repayment of the 

overdraft credit balance, (2) a resulting 

balance in the asset account of $50, (3) 

a credit entry of $100 to the credit 

account, and (4) a resulting balance in 

the credit account of $0. In contrast, 

without the separate credit account, 

where overdrafts are represented as 

negative balances on the asset account, 

the same consumer would see disclosed 

only the following: a $150 credit to the 

asset account for the incoming 

electronic deposit and a resulting 

balance of $50 in the asset account. The 

CFPB has preliminarily determined that 

this latter approach may result in the 

uninformed use of credit by the 

consumer, because the consumer may 

not readily appreciate how the credit 

and asset aspects of their asset account 

have interacted. The CFPB has therefore 

also preliminarily determined that the 

former approach of requiring that the 

asset account and the credit account be 

separate from each other—and the better 

periodic-statement disclosures that 

necessarily accompany that approach— 

will help avoid the uninformed use of 

credit by the consumer. 

Credit account opening. Opening an 

open-end consumer credit plan, such as 

a covered overdraft credit account, that 

is subject to Regulation Z may trigger 

certain requirements and protections, 

including account opening disclosures 

pursuant to §§ 1026.5 and 1026.6 and, if 

a credit card is involved, ability to pay 

requirements in § 1026.51 and fee 

limitations in § 1026.52(a). Consistent 

with existing requirements, for purposes 

of determining compliance with 

provisions of Regulation Z that are tied 

to credit account opening, an account 

opening with respect to covered 

overdraft credit occurs on the date a 

consumer may first engage in a 

transaction for which covered overdraft 

credit can be extended under the 

account. 

If the CFPB finalizes the rule as 

proposed, very large financial 

institutions that offer overdraft services 

on existing accounts may need to take 

steps to come into compliance with 

Regulation Z. For example, assume that 

prior to the effective date of this 

proposed rule, a very large financial 

institution through negative balances on 

a deposit account provides above 

breakeven overdraft credit that is not 

subject to Regulation Z to a consumer, 

and assume further that the institution 

seeks to continue to provide above 

breakeven overdraft credit to the 

consumer subsequent to the effective 

date of the proposed rule. After the 

proposed rule’s effective date, such 

above breakeven overdraft credit would 

be covered overdraft credit, and 

proposed § 1026.62(c) of the proposed 

rule (discussed in the preceding 

paragraphs) would require the 

institution to provide the covered 

overdraft credit to the consumer through 

a separate covered overdraft credit 

account. Therefore, to provide above 


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180The only change in the terms of the previously 

existing deposit account that would be required by 

the CFPB’s proposed rule would be a reduction in 

the dollar amount of the overdraft fee the institution 

charges for negative-balance (non-covered) 

overdraft. Because that changed term would be a 

change in the consumer’s favor, a change-in-terms 

notice would not be required in advance of the 

change. See Regulation E § 1005.8(a)(1) and 

Regulation DD § 1030.5(a)(1). 

181 12 CFR 1026.2(a)(15)(i), (iv) and comment 

2(a)(15)–2.i.B. Non-covered overdraft credit is not 

subject to Regulation Z, which includes the 

provisions applicable generally to credit cards and 

the provisions implementing the CARD Act, 

because (1) it is not subject to a finance charge or 

repayable by a written agreement in more than four 

installments and (2) a debit card that can access 

non-covered overdraft credit is not considered a 

credit card because, as current comment 2(a)(15)– 

2.ii.A explains, a debit card with no credit feature 

or agreement is not a credit card even if the creditor 

occasionally honors an inadvertent overdraft. As 

discussed in the changes to the definition of finance 

charge section above, the CFPB is proposing to 

amend the definition of ‘‘finance charge’’ to expand 

the scope of covered overdraft credit, such that 

certain overdraft credit that is currently noncovered overdraft credit would be considered 

covered overdraft credit if this proposal is finalized 

breakeven, covered overdraft credit to 

the consumer subsequent to the 

effective date of this proposed rule, the 

institution would need to open a 

covered overdraft credit account for the 

consumer. Further, the institution 

would be required by § 1026.5(b)(1)(i) to 

provide to credit account opening 

disclosures to the consumer for the 

covered overdraft credit account before 

the consumer makes the first transaction 

under the covered overdraft credit plan. 

This is so regardless of whether there 

was any change in the terms or 

conditions of the previously existing 

deposit account under which the above 

breakeven non-covered overdraft credit 

was previously extended.180

Disclosure requirements. Subsequent 

to the effective date of the CFPB’s 

proposed rule, when a very large 

financial institution seeks to provide 

above breakeven overdraft credit to a 

consumer through a covered overdraft 

credit account, the institution will need 

to comply with the existing disclosure 

requirements in Regulation Z. The CFPB 

seeks comment on whether any specific 

disclosure requirements should be 

clarified and on whether any 

adjustments should be made to existing 

disclosure requirements to help better 

promote the informed use of covered 

overdraft credit. 

Credit subaccounts. Like the CFPB’s 

current proposal, section 1026.61(b), 

established by the CFPB’s 2016 Prepaid 

Final Rule, prohibits a covered separate 

credit feature from being structured as a 

negative balance on a prepaid account. 

Section 1026.61(b) requires that the 

covered credit feature be provided ‘‘as a 

separate credit feature, either as a 

separate credit account, or as a credit 

subaccount of a prepaid account that is 

separate from the asset feature of the 

prepaid account.’’ Further, comment 

61(b)–1 requires that ‘‘the credit feature 

[] be set up as a separate balance on the 

prepaid account such that there are at 

least two balances on the prepaid 

account—the asset account balance and 

the credit account balance.’’ 

In light of these requirements that the 

prepaid accounts rule attaches to 

covered credit subaccounts tied to 

prepaid asset accounts (i.e., the same 

requirements that it attaches to covered 

credit accounts tied to prepaid asset 

accounts) the CFPB has preliminarily 

determined that there would be no 

meaningful distinction between a 

covered overdraft credit account tied to 

a covered asset account and a covered 

overdraft credit subaccount tied to a 

covered asset account. For clarity in this 

regard, proposed § 1026.62(b)(4) would 

establish that a credit subaccount is a 

type of covered overdraft credit account. 

Nonetheless, the CFPB seeks comment 

on whether any distinctions should be 

made between covered overdraft credit 

subaccounts and other types of covered 

overdraft credit accounts. The CFPB 

also seeks comment on whether any 

additional requirements should be 

adopted to specify how covered 

overdraft credit accounts should be 

disclosed to consumers. 

Existing overdraft lines of credit. 

Many very large financial institutions 

currently provide overdraft lines of 

credit subject to Regulation Z. 

Subsequent to the effective date of the 

CFPB’s proposed rule, these lines of 

credit would be covered overdraft credit 

accounts, regardless of whether they are 

above or below breakeven pricing. 

However, under the proposed rule the 

institution would not be opening a new 

credit account (i.e., would not be newly 

opening an account that is subject to 

Regulation Z) because a credit 

account—the overdraft line of credit— 

already existed prior to the effective 

date of the proposed rule. Thus, 

Regulation Z requirements triggered by 

credit-account opening (such as 

§§ 1026.5, 1026.6, 1026.51, and 

§ 1026.52(a) mentioned above) would 

not apply to these previously existing 

overdraft lines of credit. However, other 

Regulation Z requirements such as 

change-in-terms requirements would 

continue to apply to them. Further, as 

discussed under proposed § 1026.4(b)(2) 

and (12), fees for transferring funds from 

the overdraft line of credit to the tied 

deposit account, which are currently 

excepted from being finance charges 

under Regulation Z, would be finance 

charges under the CFPB’s proposed 

changes to § 1026.4(b)(2) and (12). 

Accordingly, very large financial 

institutions may need to provide 

change-in-terms notices in connection 

with many of the overdraft lines of 

credit that they currently provide. The 

CFPB seeks comment on whether 

additional guidance would be helpful 

for understanding the disclosure and 

other requirements that under the 

proposed rule would be applicable to 

very large financial institutions in these 

circumstances. If so, what examples 

should be addressed and added? 

2. Credit Card Changes 

Credit cards and card issuers are 

generally subject to additional 

requirements in Regulation Z. The 

requirements that apply generally 

depend on whether the credit account 

can be accessed by a ‘‘credit card,’’ 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan,’’ or ‘‘charge card’’ under 

Regulation Z. Currently, a covered 

overdraft credit account that can be 

accessed by a debit card or other device 

that qualifies as a credit card (including 

certain account numbers) is subject to 

some Regulation Z requirements that 

apply to ‘‘credit cards.’’ Such covered 

overdraft credit is not subject to 

requirements that apply to a ‘‘credit 

card account under an open-end (not 

home-secured) consumer credit plan.’’ It 

is also specifically excepted from some 

of the requirements that apply to ‘‘credit 

cards.’’ As discussed in more detail 

below, the CFPB is proposing to apply 

all credit card provisions generally to 

covered overdraft credit accounts if the 

credit can be accessed by a hybrid debitcredit card, as defined in this proposal, 

such as a debit card offered by a very 

large financial institution. 

i. Applying CARD Act Provisions of 

Regulation Z to Covered Overdraft 

Credit 

The CFPB is proposing to subject all 

covered overdraft credit to the CARD 

Act provisions of Regulation Z in 

subparts G and B (the CARD Act 

provisions) if that credit is (1) open-end 

credit; (2) accessible by a credit card; 

and (3) offered by a very large financial 

institution. Currently, covered overdraft 

credit accessible by a debit card is 

considered a credit card under 

Regulation Z and generally is subject to 

the Regulation Z provisions that apply 

to credit cards, but, because of two nonstatutory exceptions, such overdraft 

credit is not subject to the CARD Act 

provisions.181 The proposal would 


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as proposed. This newly covered overdraft credit 

generally would be subject to the Regulation Z 

provisions applicable to credit cards if the covered 

overdraft credit can be accessed by a credit card. 

However, without further changes, the nonstatutory exceptions that exclude covered overdraft 

from being subject to the CARD Act provisions 

would prevent covered overdraft credit, including 

newly covered overdraft credit, from being subject 

to the CARD Act provisions. As discussed in this 

section, the CFPB is proposing to update these nonstatutory exceptions, which would subject certain 

covered overdraft credit, including certain newly 

covered overdraft credit, to the CARD Act 

provisions. 

182See CARD Act sections 101, 102, 105, 106, 

109, 201, 301. 

183See CARD Act sections 102, 105, 109, 301. 

184See 75 FR 7658, 7663–65 (Feb. 22, 2010). The 

Board first implemented the statutory term ‘‘credit 

card account under an open-end consumer credit 

plan’’ in its July 2009 interim final rule, which, in 

relevant part, exempted home equity lines of credit 

from certain requirements of the CARD Act. 74 FR 

36077, 36083 (July 22, 2009). The Board added the 

new term ‘‘credit card account under an open-end 

(not home-secured) consumer credit plan’’ in its 

2010 final rule. 185See 12 CFR 1026.4. The current overdraftrelated exception in 12 CFR 1026.4(c)(3), which the 

CFPB is proposing to narrow in this rulemaking, 

does not apply to overdraft products where ‘‘the 

payment of [overdrawing] items and the imposition 

of the charge were previously agreed upon in 

writing.’’ 

186See Regulation Z comment 2(a)(15)–2.i.B. 

187See 75 FR 7658, 7664 (Feb. 22, 2010). 

188 Id. 

189 Id. at 7665. 

190 Id. 

subject such credit to the CARD Act 

provisions when it is offered by very 

large financial institutions. To 

implement these changes, the proposal 

would add a new definition of ‘‘hybrid 

debit-credit card,’’ amend the 

definitions of ‘‘credit card’’ and ‘‘credit 

card account under an open-end (not 

home-secured) consumer credit plan,’’ 

and make other clarifying changes to the 

rule text and associated commentary. 

The CARD Act and Overdraft 

The CARD Act amended TILA to 

institute new substantive and disclosure 

requirements to establish fair and 

transparent practices for open-end 

consumer credit card plans. The CARD 

Act addressed multiple aspects of the 

credit card market, regulating, among 

other things, rate increases, the 

imposition of penalty fees, the timing of 

payments, the issuance of subprime 

credit cards, ability to pay assessments, 

the specifics of certain credit card 

disclosures, the marketing of credit 

reports, and the marketing of credit 

cards to young consumers.182 These 

provisions indicate that Congress was 

particularly concerned with protecting 

vulnerable populations of consumers— 

like students and individuals with 

subprime credit—and with regulating 

high-cost consumer credit card products 

subject to burdensome fees.183

The statutory language of the CARD 

Act applies the protections broadly to 

credit card products that can access 

open-end consumer credit. The CARD 

Act generally applies to any ‘‘credit card 

account under an open-end consumer 

credit plan.’’ Absent two non-statutory 

exceptions, this broad language 

generally would apply to open-end 

covered overdraft credit that is accessed 

by a credit card, including a debit card. 

The Board implemented this statutory 

language in Regulation Z in 2010 

through the term ‘‘credit card account 

under an open-end (not home-secured) 

consumer credit plan.’’ 184 That term is 

defined in current § 1026.2(a)(15)(ii) to 

generally mean an open-end credit 

account that is accessed by a credit card. 

The Board then used the term ‘‘credit 

card account under an open-end (not 

home-secured) consumer credit plan’’ in 

provisions of Regulation Z in subpart G 

and subpart B that were promulgated or 

amended to implement the CARD Act. 

Like the statutory definition, absent 

non-statutory exceptions, this regulatory 

definition would be broad enough so 

that the CARD Act provisions generally 

would apply to covered overdraft credit 

that is accessed by a credit card, 

including a debit card. 

However, overdraft lines of credit are 

not subject to the CARD Act provisions 

in subpart G and subpart B that apply 

to a ‘‘credit card account under an openend (not home-secured) consumer credit 

plan’’ because the Board adopted two 

exceptions that exclude overdraft lines 

of credit from that definition. Current 

§ 1026.2(a)(15)(ii)(B) and (C), 

respectively, except from this definition 

(1) an overdraft line of credit that is 

accessed by a debit card; and (2) an 

overdraft line of credit that is accessed 

by an account number other than an 

account number that is a hybrid 

prepaid-credit card and that can access 

a covered separate credit feature as 

defined in § 1026.61. Although 

Regulation Z does not define ‘‘overdraft 

line of credit,’’ the term is generally 

understood to refer to an open-end 

credit product tied to an asset account. 

Funds are advanced from the credit 

product to pay for a withdrawal when 

the consumer withdraws more money 

than they have in the asset account. 

Aside from the CARD Act provisions 

in subpart G and subpart B, currently 

these overdraft line of credit products 

are generally subject to Regulation Z’s 

open-end credit rules when the fees and 

other charges imposed on this product 

are finance charges.185 To the extent 

these overdraft line of credit products 

can be accessed by a debit card or other 

single credit device, they are thus also 

a ‘‘credit card’’ and are generally subject 

to provisions in Regulation Z that apply 

to a ‘‘credit card.’’ 186

The Board acknowledged in its 

February 2010 Rule that it believed that, 

as a general matter, Congress intended 

the CARD Act to apply broadly to 

products that meet the definition of a 

credit card.187 The Board also 

acknowledged that a debit card that 

accesses an overdraft line of credit is a 

‘‘credit card.’’ 188

Nevertheless, the Board relied on its 

authority under TILA section 105(a) and 

section 2 of the CARD Act to create two 

exceptions for overdraft lines of credit, 

including one for debit cards that can 

access an overdraft line of credit. As a 

result of the exceptions, such accounts 

are not subject to the various CARD Act 

provisions in subpart G and subpart B, 

as discussed below, that apply to a 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan.’’ In creating the exceptions, the 

Board stated that, at the time, 

Regulation Z-covered overdraft lines of 

credit were not in wide use and that, as 

a general matter, creditors who offered 

overdraft lines of credit did not engage 

in some of the practices regulated by the 

CARD Act provisions with respect to 

those products.189 The Board cited three 

examples of practices regulated by the 

CARD Act that were not currently 

present in the market: (1) increasing 

annual percentage rates, (2) applying 

different rates to different balances, and 

(3) allowing grace periods before 

charging interest. The Board did not 

specifically address other provisions, 

such as limitations on penalty fees and 

the requirement to assess ability to pay, 

which may have had an impact on 

practices involving overdraft lines of 

credit. Because of its assessment that the 

small market for overdraft lines of credit 

did not present substantial consumer 

protection concerns similar to those 

addressed by the CARD Act, the Board 

concluded that ‘‘alternative forms of 

regulation’’ such as Regulation E were 

‘‘better suited’’ to protect consumers 

from harm with respect to those 

products.190

The CFPB is proposing to amend the 

non-statutory overdraft-related 

exceptions so that a very large financial 

institution that offers open-end covered 

overdraft credit that can be accessed by 

a ‘‘credit card’’ must comply with 

provisions that apply to a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan.’’ As a 

result, open-end covered overdraft 

credit that can be accessed by a ‘‘credit 

card,’’ including a debit card, would be 


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191 15 U.S.C. 1602(l). 

subject to the CARD Act provisions in 

subpart G and subpart B if it is offered 

by a very large financial institution. 

This would include existing covered 

overdraft credit (currently commonly 

referred to as ‘‘overdraft lines of credit’’) 

and overdraft credit that would become 

covered overdraft credit, such as above 

breakeven overdraft credit, if the rule is 

finalized. 

The CFPB has preliminarily 

determined that the exceptions are no 

longer appropriate. While the Board 

created those exceptions based on the 

understanding that overdraft lines of 

credit were not in ‘‘wide use’’ at the 

time and did not include features 

common to other credit cards, the CFPB 

has preliminarily determined that the 

prevalence or nature of a particular type 

of credit card should not render it 

beyond the scope of the CARD Act. By 

its plain terms, the CARD Act applies to 

all ‘‘credit card account[s] under an 

open-end consumer credit plan,’’ which, 

as noted above, would include open-end 

overdraft credit accessible by a credit 

card. In any event, the CFPB anticipates 

that the market for covered overdraft 

credit could react to the proposed 

changes in this rulemaking, if finalized, 

in several ways, including by offering 

covered overdraft credit to many 

consumers who currently receive noncovered overdraft credit, including 

subprime consumers. 

Very large financial institutions could 

also react to the proposed changes by 

offering different terms on covered 

overdraft credit than those that have 

historically been offered. For example, 

financial institutions could start 

marketing covered overdraft credit as a 

long-term credit solution and could 

begin imposing different rates on 

different balances. In addition, 

consistent with the current non-covered 

overdraft credit market, financial 

institutions could allow for grace 

periods before imposing finance 

charges. Similarly, other protections, 

such as the requirement to assess ability 

to pay, the fee limitations provision, and 

the limits on penalty fees, may become 

even more important if covered 

overdraft credit is offered to more 

subprime consumers. 

The CFPB also has preliminarily 

determined that the CARD Act 

provisions would provide important 

consumer protections to those 

consumers most likely to use covered 

overdraft credit accounts. Today, a 

small subset of consumers 

(approximately 10 percent of 

consumers), whom the CFPB has in the 

past referred to as ‘‘frequent 

overdrafters,’’ incur most overdraft fees. 

In light of the CFPB’s proposed 

treatment of the overdraft fee that a very 

large financial institution may charge 

for non-covered overdraft, the CFPB 

expects that some very large financial 

institutions will have reduced 

incentives to provide non-covered 

overdraft credit to the subprime 

consumers who are frequent 

overdrafters and today incur the 

preponderance of overdraft fees. Instead 

of providing these consumers with noncovered overdraft credit, some very 

large financial institutions may provide 

these consumers with covered overdraft 

credit accounts—the accounts to which 

the CFPB is proposing to apply the 

CARD Act provisions—which would 

allow them the flexibility to charge 

more than the threshold that cannot be 

exceeded to remain non-covered 

overdraft credit. 

The CFPB also has preliminarily 

determined that applying the CARD Act 

provisions as proposed could provide 

important benefits to subprime 

consumers. Many of the provisions of 

the CARD Act target credit card 

practices affecting subprime consumers. 

To the extent that some financial 

institutions would offer covered 

overdraft credit to more subprime 

consumers if the proposed rule were 

adopted, these CARD Act provisions 

would offer additional protections to 

consumers with a debit card that 

accesses overdraft credit. This will 

result in a consumer who uses a debit 

card to access overdraft credit—who 

often is a subprime consumer— 

receiving the same protections that a 

subprime credit card consumer receives 

today, consistent with the broad 

statutory language in the CARD Act. 

To prevent the market for Regulation 

Z-covered overdraft from posing 

consumer risks after the rule goes into 

effect, and to carry out the purposes of 

TILA by promoting the informed use of 

credit and protecting consumers against 

unfair credit card practices pursuant to 

TILA section 105(a), and to carry out the 

CARD Act pursuant to section 2 of the 

CARD Act, the CFPB is proposing to 

subject covered overdraft credit to the 

CARD Act provisions in subpart G and 

subpart B when such credit can be 

accessed by a credit card and is offered 

by a very large financial institution. 

This would revise non-statutory 

exceptions so that Regulation Z’s 

coverage more closely aligns with the 

plain language of the CARD Act. 

The CFPB invites comment on the 

proposal to subject covered overdraft 

credit to the CARD Act provisions in 

subpart G and subpart B. In particular, 

the CFPB seeks comment on potential 

impacts of a finalized rule, if any, on the 

market for covered overdraft credit and 

the resulting effects of market changes 

on consumers. The CFPB also seeks 

comment on the costs and benefits to 

these consumers of the CARD Act 

protections in subpart G and subpart B. 

The CFPB also requests comment on 

whether clarification is needed or 

whether there are operational challenges 

regarding the application of specific 

CARD Act provisions to covered 

overdraft credit. The CFPB also seeks 

comment on what, if any, operational 

costs might arise as a result. 

The proposed rule would subject all 

covered overdraft credit to the CARD 

Act provisions in subparts G and B if 

that credit is (1) open-end credit; (2) 

accessible by a credit card; and (3) 

offered by a very large financial 

institution. The proposed rule would 

also add a new definition of ‘‘hybrid 

debit-credit card,’’ and amend the 

definitions of ‘‘credit card,’’ and ‘‘credit 

card account under an open-end (not 

home-secured) consumer credit plan.’’ 

The proposal would also make other 

clarifying changes to the rule text and 

associated commentary. These technical 

and clarifying changes are discussed in 

more detail below. 

Hybrid Debit-Credit Card 

(§ 1026.62(b)(5)) 

In proposed § 1026.62(b)(5), the CFPB 

is proposing to define the new term 

‘‘hybrid debit-credit card’’ for clarity 

and ease of reference. The CFPB 

proposes to define ‘‘hybrid debit-credit 

card’’ to mean any card, plate, or other 

single credit device that a consumer 

may use to obtain covered overdraft 

credit from a very large financial 

institution. This proposed definition 

describes a type of credit card that has 

two defining characteristics: (1) the 

credit card must be able to access 

covered overdraft credit; and (2) the 

covered overdraft credit must be offered 

by a very large financial institution. 

This definition would include, for 

example, a debit card that a consumer 

can use to complete transactions using 

funds drawn from an asset account held 

at a very large financial institution when 

that device can also be used to access 

covered overdraft credit. 

Credit Card (§ 1026.2(a)(15)(i)) 

TILA defines ‘‘credit card’’ as ‘‘any 

card, plate, coupon book or other credit 

device existing for the purpose of 

obtaining money, property, labor, or 

services on credit.’’ 191 Section 

1026.2(a)(15)(i) defines credit card as 

‘‘any card, plate, or other single credit 

device that may be used from time to 

time to obtain credit,’’ which includes 


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192See current Regulation Z comment 

1026.2(a)(15)–2.i.B (stating that examples of credit 

cards include a debit card that also accesses a credit 

account). 

‘‘a hybrid prepaid-credit card as defined 

in § 1026.61.’’ The CFPB is proposing to 

amend the definition of ‘‘credit card’’ to 

clarify what is and is not a credit card 

when certain credit devices can access 

covered overdraft credit. These 

amendments would clarify that when a 

debit card can access covered overdraft 

credit, the debit card would be a credit 

card subject to the CARD Act 

provisions. 

First, the CFPB is proposing various 

non-substantive wording revisions in 

§ 1026.2(a)(15)(i) to clarify that a debit 

card that can access a covered overdraft 

credit account is a credit card. These 

changes are non-substantive because, 

under Regulation Z today, a debit card 

that can access an overdraft line of 

credit is a credit card.192 Nonetheless, to 

make this fact—that a debit card that 

can access covered overdraft credit is a 

credit card—as clear as possible, the 

CFPB is proposing two textual changes 

for clarity. First, in § 1026.62, the CFPB 

proposes to define a ‘‘hybrid debitcredit card’’ as any card (including a 

debit card) that can access covered 

overdraft credit offered by a very large 

financial institution. Second, the CFPB 

proposes to amend § 1026.2(a)(15)(i) to 

explain that the definition of ‘‘credit 

card’’ includes a hybrid debit-credit 

card. Thus, under the proposal, a debit 

card that can access a covered overdraft 

credit account is a hybrid debit-credit 

card, a hybrid debit-credit card is a 

credit card, and a debit card that can 

access a covered overdraft credit 

account is a credit card. This is not a 

substantive change from the extant 

regulation because, as noted, under the 

extant regulation a debit card that can 

access an overdraft line of credit is a 

credit card. 

Similarly, the CFPB is proposing to 

revise comment 2(a)(15)–2.i.B to clarify 

that a hybrid debit-credit card is a type 

of debit card that also accesses a credit 

account, such as a covered overdraft 

credit account. 

To further clarify what is and is not 

a ‘‘credit card’’ in light of proposed 

definitions and proposed changes to the 

definition of ‘‘finance charge,’’ the CFPB 

is also proposing to amend several 

examples in the commentary to 

§ 1026.2(a)(15)(i) and (ii). In comment 

2(a)(15)–2.i.A, the CFPB is proposing to 

replace the undefined term ‘‘overdraft 

line of credit’’ with a new proposed 

term ‘‘covered overdraft credit.’’ In 

comment 2(a)(15)–2.ii.C, the CFPB is 

proposing amendments to clarify that an 

account number is a credit card when it 

can access covered overdraft credit if 

the account number can use the credit 

accessed to purchase goods and 

services. 

The CFPB is also proposing to amend 

comment 2(a)(15)–2.ii.A and add 

comment 2(a)(15)–2.ii.E to ensure that 

the examples of what is not a credit card 

clarify that allowing a card, plate, or 

other single credit device to access noncovered overdraft credit does not trigger 

Regulation Z’s credit card requirements. 

As explained in current § 1026.1(c)(2), 

where a credit card is involved, certain 

provisions of Regulation Z apply even if 

the credit is not subject to a finance 

charge or is not payable by a written 

agreement in more than four 

installments. However, comment 

2(a)(15)–2.ii.A clarifies that a checkguarantee or debit card with no credit 

feature or agreement is not a credit card 

‘‘even if the creditor occasionally 

honors an inadvertent overdraft.’’ In 

other words, a financial institution that 

allows a debit card or check-guarantee 

card to access non-covered overdraft— 

including overdraft where the financial 

institution does not impose a ‘‘finance 

charge,’’ either because it does not 

impose a fee or because any fee charged 

is not considered a finance charge under 

§ 1026.4(c)(3)—does not have to comply 

with Regulation Z’s credit card 

provisions, even though such cards 

would otherwise meet the definition of 

‘‘credit card.’’ As discussed above, 

currently, § 1026.4(c)(3) provides that 

overdraft charges are not finance 

charges if the payment of such items 

and the imposition of the charge were 

not previously agreed upon in writing. 

Thus, financial institutions may pay an 

inadvertent overdraft and charge for it 

without complying with Regulation Z as 

long as the payment of the overdraft and 

associated charges are consistent with 

the provision. The CFPB is proposing to 

modify the exception from the 

definition of finance charge in 

§ 1026.4(c)(3) so that certain overdraftrelated charges are finance charges even 

if the financial institution does not agree 

in advance to pay the items. If finalized, 

some charges for paying overdrafts that 

may otherwise be characterized as 

occasional or inadvertent would be 

considered finance charges. To ensure 

the commentary aligns with the 

exception in § 1026.4(c)(3) and clarify 

that allowing a consumer to access noncovered overdraft credit using a debit 

card does not trigger credit card 

requirements in Regulation Z, the CFPB 

is proposing to: (1) amend comment 

2(a)(15)–2.ii.A by deleting the phrase 

‘‘even if the creditor occasionally 

honors an inadvertent overdraft;’’ and 

(2) add comment 2(a)(15)–2.ii.E to 

clarify that a check-guarantee or debit 

card that can only access non-covered 

overdraft credit is not a ‘‘credit card’’. 

Credit Card Account Under an OpenEnd (Not Home-Secured) Consumer 

Credit Plan (§ 1026.2(a)(15)(ii)) 

The CFPB is proposing to amend the 

definition of ‘‘credit card account under 

an open-end (not home-secured) 

consumer credit plan’’ in 

§ 1026.2(a)(15)(ii) by narrowing the two 

overdraft-related exceptions so that 

open-end covered overdraft credit 

offered by a very large financial 

institution would no longer be excepted 

from the definition of a ‘‘credit card 

account under an open-end (not homesecured) consumer credit plan.’’ Such 

credit offered by a very large financial 

institution would be subject to the 

CARD Act provisions in subpart G and 

subpart B. 

Discussion of the Effect of Applying 

Regulation Z’s CARD Act Provisions to 

Covered Overdraft Credit Accounts 

Accessed by a Hybrid Debit-Credit Card 

These changes would subject all 

covered overdraft credit to the CARD 

Act provisions in subparts G and B if 

that credit is accessible by a credit card 

and offered by a very large financial 

institution. 

The CARD Act provisions that the 

CFPB is proposing to apply to hybrid 

debit-credit cards include the following: 

• The requirement in § 1026.51 to 

assess the consumer’s ability to pay the 

credit extended, such as covered 

overdraft credit, including special rules 

regarding the extension of credit to 

persons under the age of 21. This may 

provide an incentive for institutions to 

structure and price covered overdraft 

credit such that consumers are better 

able to repay it, relative to current noncovered overdraft credit. 

• The restriction in § 1026.52(a) on 

the amount of certain fees, such as 

overdraft fees, that an issuer can charge 

during the first year after opening of a 

credit account, such as a covered 

overdraft credit account, to 25 percent 

of the credit limit. This restriction does 

not apply to charges assessed as 

periodic rates. This may provide an 

incentive for institutions to reduce or 

eliminate flat fees for overdraft and to 

instead apply periodic rates that must 

be disclosed as APRs. The CFPB has 

preliminarily determined that this 

change in the manner and disclosure of 

overdraft credit pricing would improve 

consumers’ ability to understand the 

price of the credit, and to compare it to 


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193CARD Act section 102, TILA section 149, 15 

U.S.C. 1665d(a). 

194Regulation Z comment 52(b)–1. 

195 12 CFR 1026.52(b)(1)(i)–(ii). 

196Section 1026.52(b)(2) also bans the imposition 

of multiple fees for the same violation. 12 CFR 

1026.52(b)(2)(ii). 

the pricing of other forms of credit that 

consumers might wish to consider. 

• The limit in § 1026.52(b)(1) on the 

amount card issuers can charge for 

‘‘back-end’’ penalty fees, such as when 

a consumer makes a late payment or 

exceeds their credit limit. This may 

provide an incentive for institutions to 

rely more on non-penalty charges that 

are disclosed as part of the upfront price 

of the covered overdraft credit. 

• The prohibition in § 1026.52(b)(2) 

on ‘‘declined transaction fees’’ and other 

penalty fees where there is no cost to 

the card issuer associated with the 

violation of the account agreement. As 

discussed below, applying this 

provision to a covered overdraft credit 

account accessed by a hybrid debitcredit card would prohibit declined 

debit card transaction fees on accounts 

with a covered overdraft credit account 

accessed by a hybrid debit-credit card. 

This provision would also prohibit 

declined ACH transaction fees where 

the card issuer declines an attempted 

ACH payment and would otherwise 

impose a fee on the cardholder for doing 

so. Consistent with comment 

52(b)(2)(i)–4, this provision would 

permit a card issuer to impose a fee for 

declining a check that attempts to access 

a covered overdraft credit account 

because such a check is ‘‘a check that 

accesses a credit card account.’’ Such a 

fee would still be limited by 

§ 1026.52(b)(1). The CFPB has 

preliminarily determined that this 

prohibition on declined transaction fees 

limit could lead institutions to shift 

away from back-end fees and toward 

upfront pricing in the form of periodic 

rates disclosed as APRs. 

• The provisions in § 1026.53 

regarding how a card issuer must 

allocate payments in excess of the 

minimum periodic payment. 

• The limitation in § 1026.54 on card 

issuers imposing a finance charge as a 

result of the loss of a grace period. 

• The prohibition in § 1026.55 on 

increases in any APR, fee, or finance 

charge applicable to any outstanding 

balance on a credit card account, with 

exceptions where advance notice is 

provided, with a requirement that the 

promotional rate generally cannot 

expire earlier than six months, and the 

requirement in § 1026.59 that card 

issuers reevaluate rate increases. 

• The restriction in § 1026.56 on fees 

for over-the-limit transactions to one per 

billing cycle and the requirement that 

the consumer opt-in to payment of such 

transactions in order for the fee to be 

charged. 

• The requirement in § 1026.57 that 

institutions of higher education publicly 

disclose agreements with card issuers 

and limit the marketing of credit cards 

on or near college campuses. 

• The requirement in § 1026.58 that 

card issuers submit credit card 

agreements to the CFPB on a quarterly 

basis. 

This proposal would also require very 

large financial institutions to comply 

with the following CARD Act-derived 

disclosure-related requirements in 

subpart B with respect to covered 

overdraft credit accounts accessed by a 

hybrid debit-credit card: 

• The timing requirements in 

§ 1026.5(b)(2)(ii)(A) for disclosures sent 

with respect to a credit card account 

under an open-end (not home-secured) 

consumer credit plan. 

• The rate-disclosure requirements in 

§ 1026.6(b)(2)(i)(F) for account-opening 

statements specific to a credit card 

account under an open-end (not homesecured) consumer credit plan. 

• The due date disclosure, repayment 

disclosure, and format requirements for 

periodic statements specific to a credit 

card account under an open-end (not 

home-secured) consumer credit plan in 

§ 1026.7(b)(11)(i), (b)(12)(i), (b)(13). 

• The subsequent disclosure 

requirements specific to a credit card 

account under an open-end (not homesecured) consumer credit plan in 

§ 1026.9(c)(2)(iv)(A)(8), (c)(2)(iv)(B)–(C), 

(g)(3)(i)(A)(6), (g)(3)(i)(B), (h). 

• The payments-related requirements 

specific to a credit card account under 

an open-end (not home secured) 

consumer credit plan in § 1026.10(b)(3), 

(e). 

• The requirements in 

§ 1026.11(c)(1)(i) related to the timely 

settlement of estate debts for a credit 

card account under an open-end (not 

home-secured) consumer credit plan. 

In addition to the proposed 

amendments to the definition of ‘‘credit 

card’’ and ‘‘credit card account under an 

open-end (not home-secured) consumer 

credit plan,’’ the CFPB is also proposing 

conforming and clarifying changes to 

the commentary for §§ 1026.55 and 

1026.57 to reflect the changes discussed 

in this section. In particular, the CFPB 

is proposing to add comment 55(a)–5 to 

clarify that the limitations on increasing 

annual percentage rates, fees, and 

charges apply to fees imposed in 

connection with covered overdraft 

credit whether those fees are imposed 

on the covered overdraft credit account 

or the associated covered asset account. 

Finally, the CFPB is proposing to amend 

comment 57(a)(1)–1 so that it would 

continue to accurately reflect the 

exceptions from the definition of credit 

card issued under a credit card account 

under an open-end (not home-secured) 

consumer credit plan if changes to that 

definition are finalized as proposed. 

Limitations on Penalty Fees 

Among the CARD Act provisions 

discussed above, one of them, 

§ 1026.52(b), raises complex policy 

considerations that the CFPB believes 

are important to address in more detail. 

Section 1026.52(b) regulates the 

imposition of penalty fees on a credit 

card account under an open-end (not 

home secured) consumer credit plan. 

TILA refers to a ‘‘penalty fee’’ as a fee 

imposed ‘‘in connection with any 

omission with respect to, or violation of, 

the cardholder agreement,’’ and it 

permits only a penalty fee that is 

‘‘reasonable and proportional to the 

amount of such omission or 

violation.’’ 193 Consistent with this 

statutory language, Regulation Z defines 

a ‘‘penalty fee’’ as ‘‘any charge imposed 

by a card issuer based on an act or 

omission that violates the terms of the 

account or any other requirements 

imposed by the card issuer with respect 

to the account, other than charges 

attributable to periodic interest 

rates.’’ 194 Section 1026.52(b)(1) permits 

a card issuer to impose a penalty fee as 

long as that fee represents a ‘‘reasonable 

proportion of the total costs incurred by 

the card issuer as a result of that type 

of violation’’ or complies with dollar 

amounts specified in a safe harbor 

provision.195 Section 1026.52(b)(2), 

meanwhile, prohibits a penalty fee that 

exceeds the dollar amount associated 

with the violation or where there is no 

dollar amount associated with the 

violation.196 In particular, 

§ 1026.52(b)(2)(i)(B)(1) prohibits any fee 

charged in connection with a 

‘‘transaction that a card issuer declines 

to authorize.’’ 

When applied to a covered overdraft 

credit account accessed by a hybrid 

debit-credit card, § 1026.52(b)(2)(B)(1) 

would prohibit most declined 

transaction fees imposed with respect to 

a declined transaction that, if paid, 

would have overdrawn a particular 

consumer’s asset account. When 

covered overdraft credit is accessible by 

a hybrid debit-credit card, the CFPB has 

preliminarily determined that a fee 

imposed when a potentially 

overdrawing transaction is declined, 

such as an nonsufficient funds (NSF) 

fee, is a penalty fee. A potentially 

overdrawing transaction initiated on a 


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197 15 U.S.C. 1665d(a). 

198See Regulation Z comment 52(b)–1. 

199See 12 CFR 1026.52(b)(2)(i)(B). 

200See 12 CFR 1026.52(b)(2)(i)(B)(1). 

201Regulation Z comment 52(b)(2)(i)–4. 202 15 U.S.C. 1642. 

consumer’s asset account, would, if 

authorized, result in the extension of 

overdraft credit. Declining such a 

transaction, and then imposing a fee for 

such an attempt, is a penalty fee 

because, under the statutory language, it 

is a fee that ‘‘a card issuer may impose 

with respect to a credit card account 

. . . in connection with any omission 

with respect to, or in violation of, the 

cardholder agreement.’’ 197 Likewise, 

under Regulation Z, it is a fee ‘‘imposed 

by a card issuer based on an act . . . 

that violates the terms’’ of the covered 

overdraft credit account ‘‘or any other 

requirements imposed by the card issuer 

with respect to’’ that overdraft credit 

account, including any requirements 

relating to when overdraft credit can 

and cannot be accessed from an asset 

account.198 Because such a transaction 

has been declined, no credit has been 

extended and there is therefore no 

dollar amount associated with the 

violation.199 Finally, because the card 

issuer is the entity declining this 

transaction, any fee imposed with 

respect to this declined transaction is a 

fee for a ‘‘transaction that the card issuer 

declines to authorize.’’ 200 This is true 

whether the penalty is charged to the 

covered overdraft credit account or the 

covered asset account. 

Thus, for a covered overdraft account 

accessed by a hybrid debit-credit card, 

15 U.S.C. 1665d(a) and § 1026.52(b) 

would prohibit any fee for a potentially 

overdrawing transaction that the card 

issuer declines to authorize. This would 

include declined debit card transactions 

as well as declined ACH transactions. 

However, as explained in comment 

52(b)(2)(i)–4, the prohibition on fees for 

transactions that a card issuer declines 

to authorize does not extend to fees 

imposed for declining a ‘‘check that can 

access a credit card account.’’ 201 The 

CFPB has preliminarily determined that 

applying § 1026.52(b) to a covered 

overdraft credit account accessed by a 

hybrid debit-credit card similarly would 

permit fees imposed when a card issuer 

declines a check on an asset account 

with an attached covered overdraft 

credit account as long as those fees 

satisfy the restrictions in § 1026.52(b)(1). 

With respect to declined transactions 

other than declined check transactions, 

the CFPB has preliminarily determined 

that the Board’s rationale in adopting 

§ 1026.52(b)(2) continues to apply. That 

is, it appears that there is no dollar 

amount associated with a declined 

transaction and the imposition of the fee 

does not appear to be related to costs 

incurred by the card issuer. The CFPB 

recognizes that it may be possible that 

such fees could have a deterrent effect 

or could affect the consumer’s conduct 

in certain limited situations. However, 

there does not appear to be any need for 

the financial institution to attempt to 

deter or influence the consumer’s 

conduct in this situation, particularly in 

light of minimal costs and risks to the 

card issuer. With respect to costs, 

because the mechanism for authorizing 

or declining a transaction is generally 

automated, the CFPB understands that 

declining transactions imposes very 

minimal or no costs, which would not 

support imposing a penalty fee. The 

CFPB understands this to be the case 

across several payment channels, 

including for payments initiated via 

debit card, payments occurring on an 

ACH network, and other online 

payments. To the extent there are 

certain minimal costs associated with 

the automated authorization and 

declination of transactions generally, 

card issuers can consider whether other 

sources of revenue might allow them to 

recoup those costs. 

The CFPB notes that these 

considerations may apply equally to 

declined checks. However, the CFPB is 

not proposing at this time to reconsider 

the Board’s prior decision to permit 

some amount of a fee in connection 

with declining to pay a check that 

accesses a credit card account and 

would apply the same approach to 

checks issued in connection with a 

checking or other transaction account 

with a connected covered overdraft 

credit account accessible by a hybrid 

debit-credit card. 

Accordingly, after considering the 

factors in 15 U.S.C. 1665d, the CFPB is 

not proposing any amendments to 

§ 1026.52(b). 

ii. Special Credit Card Provisions 

(§ 1026.12) 

Existing § 1026.12 contains special 

rules applicable to credit cards and 

credit card accounts, including rules 

regarding the conditions under which a 

credit card may be issued, liability of 

cardholders for unauthorized use, 

cardholder rights to assert merchant 

claims and defenses against the card 

issuer, and the prohibition on offsets by 

issuers. 

The proposal would revise the 

commentary to § 1026.12 to clarify how 

the special card provisions of § 1026.12 

apply to hybrid debit-credit cards. 

Specifically, the proposal would add a 

sentence to comment 12–1 clarifying 

that paragraphs (a) through (f) of 

§ 1026.12 apply to hybrid debit-credit 

cards notwithstanding paragraph (g). 

Paragraph (g) addresses whether 

Regulation Z or Regulation E controls in 

instances where a transaction involves 

both credit and electronic fund transfer 

aspects. The proposed revision to 

comment 12–1 is intended to clarify that 

the provisions of § 1026.12 relating to 

card issuance and liability apply to 

hybrid debit-credit cards. 

As discussed in greater detail below, 

the proposal would provide additional 

guidance on unsolicited issuance in 

§ 1026.12(a) and the right of a 

cardholder to assert claims or defenses 

against a card issuer in § 1026.12(c). 

iii. Clarification to Issuance of Credit 

Cards (§ 1026.12(a)) 

TILA section 132 generally prohibits 

creditors from issuing credit cards 

except in response to a request or an 

application. TILA section 132 explicitly 

exempts credit cards issued as renewals 

of or substitutes for previously accepted 

credit cards from this prohibition.202

Section 1026.12(a) of Regulation Z 

implements TILA section 132 and 

provides that ‘‘[r]egardless of the 

purpose for which a credit card is to be 

used, including business, commercial, 

or agricultural use, no credit card shall 

be issued to any person except: (1) In 

response to an oral or written request or 

application for the card; or (2) As a 

renewal of, or substitute for, an accepted 

credit card.’’ The proposal would 

provide guidance on how the 

prohibition on issuing unsolicited credit 

cards applies to hybrid debit-credit 

cards. 

Clarification to Explicit Request 

Requirement (§ 1026.12(a)(1)) 

Comment 12(a)(1)–1 states that ‘‘[a] 

request or application for a card must be 

explicit’’ and that ‘‘a request for an 

overdraft plan tied to a checking 

account does not constitute an 

application for a credit card with 

overdraft checking features.’’ However, 

as discussed in greater detail in part 

[IV.E.2.i], under the proposal, a hybrid 

debit-credit card would be a credit card 

that a consumer may use from time to 

time to obtain covered overdraft credit 

from a very large financial institution. 

Therefore, the prohibition on issuing 

unsolicited credit cards set forth in 

§ 1026.12(a)(1) would apply to hybrid 

debit-credit cards. As a result, a request 

for covered overdraft credit from a very 

large financial institution would 

constitute an application for a credit 

card with overdraft features to the 

extent such credit would be accessible 


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203 15 U.S.C. 1666i. 

204 46 FR 20848, 20865 (Apr. 7, 1981). 

205 Id. 

through a hybrid debit-credit card. The 

proposal would revise comment 

12(a)(1)–1 to clarify that a very large 

financial institution cannot issue a 

hybrid debit-credit card to a person 

without first receiving an oral or written 

request or application from that person 

for the hybrid debit-credit card. 

The proposed rule also would amend 

comment 12(a)(1)–2. Comment 12(a)(1)– 

2 explains that the addition of a credit 

feature or plan to a non-credit card that 

would turn that card into a credit card 

constitutes issuance of a credit card. 

The comment then provides two 

examples of scenarios that would 

constitute issuance of a credit card. The 

proposed rule would amend comment 

12(a)(1)–2 by adding a third example 

relating to hybrid debit-credit cards as 

comment 12(a)(1)–2.iii. Proposed 

comment 12(a)(1)–2.iii would state that 

extending covered overdraft credit 

through a hybrid debit-credit card as 

defined in § 1026.62 would constitute 

issuance of a credit card. For example, 

if a very large financial institution 

initially allowed a consumer to use a 

debit card to access overdraft credit that 

is not ‘‘covered overdraft credit’’ as 

defined in § 1026.62, the very large 

financial institution would be issuing a 

credit card if it then allowed the 

consumer to use the same card to access 

covered overdraft credit. Under that 

scenario, the debit card would convert 

into a hybrid debit-credit card subject to 

the requirements of § 1026.12(a). 

Clarifications to Replacement Card 

Requirements (§ 1026.12(a)(2)) 

Comment 12(a)(2)–5 (the so-called 

‘‘one for one’’ rule) explains that an 

accepted card generally may be replaced 

by no more than one renewal or 

substitute card. For example, the card 

issuer may not replace a credit card 

permitting purchases and cash advances 

with two cards, one for the purchases 

and another for the cash advances. 

However, comment 12(a)(2)–6 provides 

three exceptions to this general ‘‘one for 

one’’ rule. First, comment 12(a)(2)–6.i 

explains that the unsolicited issuance 

rule in § 1026.12(a) does not prohibit 

the card issuer from replacing a debit/ 

credit card with a credit card and 

another card with only debit functions 

(or debit functions plus an associated 

overdraft capability), since the latter 

card could be issued on an unsolicited 

basis under Regulation E. Second, 

comment 12(a)(2)–6.ii explains that 

§ 1026.12(a) does not prohibit a card 

issuer from replacing a single card that 

is both a prepaid card and a credit card 

with a credit card and a separate 

prepaid card where the latter card is not 

a hybrid prepaid-credit card as defined 

in § 1026.61. Finally, comment 12(a)(2)– 

6.iii explains that § 1026.12(a) does not 

prohibit a card issuer from replacing an 

accepted card with more than one 

renewal or substitute card, provided 

that: ‘‘(A) No replacement card accesses 

any account not accessed by the 

accepted card; (B) For terms and 

conditions required to be disclosed 

under § 1026.6, all replacement cards 

are issued subject to the same terms and 

conditions, except that a creditor may 

vary terms for which no change in terms 

notice is required under § 1026.9(c); and 

(3) Under the account’s terms the 

consumer’s total liability for 

unauthorized use with respect to the 

account does not increase.’’ 

The proposal would amend comment 

12(a)(2)–6 by revising comment 

12(a)(2)–6.i in two respects. First, it 

would explain that a hybrid debit-credit 

card is an example of a single card that 

is both a debit card and a credit card. 

Second, it would remove the phrase ‘‘an 

associated overdraft capability’’ in the 

parenthetical and replace it with the 

phrase ‘‘an associated capability to 

extend overdraft credit that is not 

covered overdraft credit as defined in 

§ 1026.62.’’ The purpose of these 

proposed changes is to clarify that a 

very large financial institution may 

replace a hybrid debit-credit card with 

a credit card and a separate debit card 

so long as the separate debit card does 

not provide the capability to extend 

covered overdraft credit (i.e., overdraft 

that is subject to a finance charge or 

payable by written agreement in more 

than four installments). Replacing the 

phrase ‘‘an associated overdraft 

capability’’ with the phrase ‘‘an 

associated capability to extend overdraft 

credit that is not covered overdraft 

credit as defined in § 1026.62’’ in the 

parenthetical would not change how the 

provision applies to card issuers, but 

rather would align terminology relating 

to overdraft credit across Regulation Z. 

iv. Right of Cardholder To Assert Claims 

or Defenses Against Card Issuer 

(§ 1026.12(c)) 

When a cardholder has a dispute with 

a person honoring the credit card, TILA 

section 170 generally provides that the 

cardholder may assert against the card 

issuer all claims (other than tort claims) 

and defenses arising out of the 

transaction.203 The claim or defense 

applies only as to unpaid balances for 

the goods or services and any finance or 

other charges imposed on that amount 

if the merchant honoring the card fails 

to resolve the dispute. The right is 

further limited generally to disputes 

exceeding $50 for purchases made in 

the consumer’s home State or within 

100 miles of the cardholder’s address. 

Regulation Z § 1026.12(c), implements 

this section of TILA. 

TILA does not except overdraft credit 

from the scope of cardholders’ right to 

assert claims or defenses against card 

issuers. However, in 1981 the Board 

created a non-statutory exception for the 

use of a debit card in connection with 

an overdraft credit plan.204 In doing so, 

the Board noted ‘‘serious operational 

problems cited by commenters as 

arising from applying the claims and 

defenses provisions to check guarantee 

and debit card transactions.’’ 205 This 

exception is in current comment 12(c)– 

3. 

As discussed above, the CFPB has 

preliminarily determined that it would 

be appropriate to update exceptions in 

Regulation Z and thus increase 

consumer protections that apply to 

covered overdraft credit offered by very 

large financial institutions. The 

proposed rule would not change the 

current overdraft exceptions for 

financial institutions with total assets of 

$10 billion or less. 

Accordingly, the CFPB proposes to 

narrow the overdraft exception in 

comment 12(c)–3 by adding the phrase 

‘‘other than a hybrid debit-credit card.’’ 

As discussed above, under proposed 

§ 1026.62(b)(5) a ‘‘hybrid debit-credit 

card’’ would include a debit card that a 

consumer may use from time to time to 

obtain covered overdraft credit from a 

very large financial institution. Such 

cards would be covered by the 

consumer protections in § 1026.12(c). 

The CFPB has preliminarily determined 

that operational concerns alluded to by 

the Board in 1981 may no longer justify 

the overdraft exception in comment 

12(c)–3, particularly for very large 

financial institutions, given advances in 

information technology systems over the 

last 40 years. The current exception 

would not change for financial 

institutions with total assets of $10 

billion or less. 

The CFPB further proposes 

conforming revisions to the commentary 

for § 1026.12(c)(1). First, the CFPB 

would revise comment 12(c)(1)–1. The 

current comment explains that the 

scope of cardholders’ right to assert 

claims or defenses against card issuers 

only includes situations where the 

goods or services are ‘‘purchased with 

the credit card.’’ The comment provides 

examples of situations that are included 

and excluded. To facilitate compliance 

with the proposed rule, the CFPB would 


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206Public Law 100–583, 102 Stat. 2960 (Nov. 3, 

1988). 207 54 FR 13855, 13856–57 (Apr. 6, 1989). 

revise comment 12(c)(1)–1 to provide an 

example illustrating that the phrase 

‘‘purchased with the credit card’’ 

includes a purchase using a hybrid 

debit-credit card to access a covered 

overdraft credit account as defined in 

§ 1026.62. 

Second, the CFPB would revise 

comment 12(c)(1)–1.ii. The current 

comment explains that credit card 

protections in § 1026.12(c) do not apply 

to the purchase of goods or services by 

use of a check accessing an overdraft 

account and a credit card used solely for 

identification of the consumer. The 

current comment further illustrates that, 

if the credit card is used to make partial 

payment for the purchase and not 

merely for identification, the right to 

assert claims or defenses would apply to 

credit extended via the credit card 

(although not to credit extended by the 

overdraft line). The current comment 

also provides that the right would apply 

to credit extended through a covered 

separate credit feature accessible by a 

hybrid prepaid-credit card. To facilitate 

compliance with the proposed rule, the 

CFPB would revise comment 12(c)(1)– 

1.ii to provide an example illustrating 

that if partial payment for the purchase 

is made with a hybrid prepaid-credit 

card or a hybrid debit-credit card, the 

right to assert claims or defenses would 

apply to credit accessed from a covered 

separate credit feature or covered 

overdraft credit account, respectively. 

Third, the CFPB would revise 

comment 12(c)(1)–1.iv. Current 

comment 12(c)(1)–1.iv cross-references 

comment 12(c)–3 and explains that 

credit card protections in § 1026.12(c) 

do not apply to purchases effected by 

use of either a check guarantee card or 

a debit card when used to draw on 

overdraft credit plans. The current 

comment further illustrates that, if a 

card serves both as an ordinary credit 

card and also as a check guarantee or 

debit card, a transaction will be subject 

to the provisions on asserting claims 

and defenses when used as an ordinary 

credit card, but not when used as a 

check guarantee or debit card. As 

discussed above, the CFPB proposes to 

narrow the overdraft exception in 

comment 12(c)–3. To reflect that 

proposed change, CFPB also proposes 

conforming revisions to comment 

12(c)(1)–1.iv, which would provide that 

the right to assert claims or defenses 

would apply to purchases effected by 

use of a hybrid debit-credit card to 

access a covered overdraft credit 

account. The CFPB would also revise 

comment 12(c)(1)–1.iv to provide an 

example illustrating that for purchases 

effected by use of a hybrid debit-credit 

card where the transaction is partially 

paid with funds from the asset account, 

and partially paid with covered 

overdraft credit, the provisions of 

§ 1026.12(c) apply only to the credit 

portion of the purchase transaction. The 

CFPB would also correct a 

typographical error in comment 

12(c)(1)–1.iv by inserting the article ‘‘a’’ 

that is currently missing before ‘‘check 

guarantee or debit card.’’ 

The CFPB seeks comment on the 

proposed narrowing of the overdraft 

exception in comment 12(c)–3, 

including what, if any, operational 

issues might arise as a result. The CFPB 

also seeks comment on the proposed 

conforming revisions to the commentary 

for § 1026.12(c)(1). 

v. Credit Card Applications and 

Solicitations (§ 1026.60) 

Existing § 1026.60 includes certain 

requirements related to applications and 

solicitations for credit cards. Among 

other things, it requires certain 

disclosures in connection with credit 

card applications and solicitations and 

prescribes content and format of the 

application or solicitation. Existing 

§ 1026.60(a)(5) excepts certain types of 

credit from the requirements of 

§ 1026.60, including § 1026.60(a)(5)(ii), 

which excepts overdraft lines of credit 

tied to asset accounts accessed by 

check-guarantee cards or by debit cards; 

§ 1026.60(a)(5)(iii), which excepts lines 

of credit accessed by check-guarantee 

cards or by debit cards that can be used 

only at automated teller machines; and 

§ 1026.60(a)(5)(iv), which excepts lines 

of credit accessed solely by account 

numbers except for a covered separate 

credit feature solely accessible by an 

account number that is a hybrid 

prepaid-debit card as defined in 

§ 1026.61. 

The requirements in § 1026.60 

implement provisions of the Fair Credit 

and Charge Card Disclosure Act of 

1988.206 The purpose of the law was to 

provide for more detailed and uniform 

disclosures of rates and other cost 

information in applications and in 

solicitations to open credit and charge 

card accounts. The statute applies the 

disclosure requirements broadly to any 

application to open a credit card 

account for any person under an openend consumer credit plan or to a 

solicitation to open such an account 

without requiring an application. In 

implementing the statutory 

requirements, the Board narrowed the 

scope of coverage by adopting the 

exceptions in what is now 

§ 1026.60(a)(5), determining that the 

requirements should apply only to 

‘‘traditional’’ credit or charge accounts 

that are used primarily to purchase 

goods and services.207

The CFPB has preliminarily 

determined that, as with the CARD Act 

provisions, covered overdraft offered by 

a very large financial institution that is 

accessible by a card, including a debit 

card, should be subject to the 

requirements of § 1026.60. In excepting 

certain types of credit from those 

requirements, the Board noted only that 

the requirements should apply only to 

‘‘traditional’’ credit cards that are used 

to purchase goods and services. 

However, given the expanded use of 

debit cards to purchase goods and 

services, many of which are linked to 

accounts that offer overdraft credit, the 

distinction between ‘‘traditional’’ credit 

cards and debit cards that can access 

overdraft credit appears far less clear. 

The CFPB has preliminarily determined 

that the requirements of § 1026.60 

should be applied consistent with the 

broad statutory language to cards that 

can access covered overdraft credit, and 

that doing so will carry out the purposes 

of TILA by assuring a meaningful 

disclosure of credit terms and avoiding 

the uninformed use of credit. 

Accordingly, the CFPB is proposing to 

amend § 1026.60 to narrow the 

exception for overdraft lines of credit. 

Specifically, the proposal would amend 

§ 1026.60(a)(5)(ii), (iii), and (iv) so that 

those exceptions would not apply to 

covered overdraft credit accessed by a 

hybrid debit-credit card. As explained 

above, the CFPB is proposing to define 

a ‘‘hybrid debit-credit card’’ as any card 

(including a debit card) that can access 

covered overdraft credit offered by a 

very large financial institution. 

Accordingly, the proposed amendments 

to § 1026.60(a)(5)(ii), (iii), and (iv) 

would narrow the exception so that the 

requirements of § 1026.60 would apply 

to covered overdraft credit offered by a 

very large financial institution when 

that credit can be accessed by any card, 

including a debit card. 

vi. Charge Card (§ 1026.2(a)(15)(iii)) 

The CFPB proposes to amend the 

definition of ‘‘charge card’’ in 

§ 1026.2(a)(15)(iii) to exclude a hybrid 

debit-credit card from the definition. 

Under the proposed amendment, a 

hybrid debit-credit card would be 

subject to the same disclosure and other 

rules as other credit cards, rather than 

certain special rules for charge cards. 

The CFPB has preliminarily determined 

that consumers using hybrid debitcredit cards would benefit from the 


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13882 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

208 15 U.S.C. 1637(c)(4)(E). 

209See Public Law 100–583, section 2, 102 Stat. 

2960 (Nov. 3, 1988). 

210 54 FR 13855, 13856 (Apr. 4, 1989). 

211See § 1026.7(b)(11)(ii)(A); 75 FR 7658, 7672– 

73 (Feb. 22, 2010). 

212See Fed. Trade Comm’n, Comparing Credit, 

Charge, Secured Credit, Debit, or Prepaid Cards 

(Dec. 2021), https://consumer.ftc.gov/articles/ 

comparing-credit-charge-secured-credit-debit-orprepaid-cards. 

213See CFPB 2017 Data Point at 6. 

214 15 U.S.C. 1693a(10). 

215 15 U.S.C. 1693k(1). 

216 12 CFR 1005.10(e)(1). 

217Regulation E comment 10(e)(1)–2. 

TILA and Regulation Z provisions that 

apply to credit cards generally. 

TILA defines ‘‘charge card’’ as ‘‘a 

card, plate, or other single credit device 

that may be used from time to time to 

obtain credit which is not subject to a 

finance charge.’’ 208 Because hybrid 

debit-credit cards would generally 

access credit that is subject to a finance 

charge, they do not fit within the 

statutory definition of charge card. The 

term ‘‘charge card’’ was introduced into 

TILA with the Fair Credit and Charge 

Card Disclosure Act of 1988, which 

amended TILA to define ‘‘charge card’’ 

as ‘‘a card, plate, or other single credit 

device that may be used from time to 

time to obtain credit which is not 

subject to a finance charge’’ (emphasis 

added).209 In its rule implementing the 

1988 act, the Board expanded the 

definition of ‘‘charge card’’ such that, in 

Regulation Z, the definition includes 

any card on which there is no periodic 

rate.210 In other words, a card with a 

finance charge that is not a periodic rate 

is excluded from the statutory charge 

card definition but is included within 

the Regulation Z definition of that term. 

The Board sought to address a perceived 

inconsistency between that statutory 

definition and the fact that some 

disclosure provisions that apply to 

charge cards reference finance charges. 

Under both the statutory and 

regulatory definitions, a charge card is 

a type of credit card. Thus, where 

Regulation Z provisions apply to credit 

cards, the provisions also apply to 

charge cards. However, in specific 

provisions, which are listed in comment 

2(a)(15)–3.i, the term charge card is 

distinguished from credit card such that 

different requirements apply. One 

example of such a provision is 

§ 1026.7(b)(11), which, in accordance 

with TILA, requires on credit card 

periodic statements the disclosure of a 

payment due date and requires that that 

date be the same day of the month for 

each billing cycle. The Board in 

Regulation Z excluded charge cards 

from these requirements.211 The CFPB 

has preliminarily determined, however, 

that these requirements should apply to 

a debit card that can access a covered 

overdraft credit account (i.e., a hybrid 

debit-credit card). The CFPB 

accordingly is proposing to exclude 

hybrid debit-credit cards from the 

Regulation Z definition of charge card. 

This approach is consistent with TILA; 

in proposing to apply the TILA and 

Regulation Z credit card provisions to 

debit cards that can access covered 

overdraft, the CFPB is merely declining 

to exercise its regulatory authority to 

implement TILA with respect to hybrid 

debit-credit cards in the ways that the 

Board previously did with respect to 

charge cards. 

The proposed definition of hybrid 

debit-credit card would encompass 

devices that can access overdraft credit 

and are subject to finance charges, 

including devices that are subject to fees 

but not a periodic interest rate. Hybrid 

debit-credit cards would therefore not 

fit the statutory definition of a ‘‘charge 

card,’’ because they are subject to 

finance charges. Further, the CFPB 

preliminarily determines that 

consumers using hybrid debit-credit 

cards would benefit from the TILA and 

Regulation Z provisions that apply to 

credit cards generally, such as 

§ 1026.7(b)(11). 

The CFPB understands that charge 

cards are typically offered to higher 

income individuals with prime or 

super-prime credit, and they often have 

no set credit limit.212 In contrast, 

current users of non-covered overdraft 

credit often are lower-income 

consumers with lower credit scores.213

Subsequent to the CFPB’s proposal, 

many of these consumers may be offered 

hybrid debit-credit cards. Accordingly, 

consistent with TILA, and to ensure that 

consumers who use covered overdraft 

credit may benefit from the full 

protection of the Regulation Z credit 

card rules, the CFPB is proposing to 

amend the regulatory definition of 

‘‘charge card’’ such that a ‘hybrid debitcredit card’ would not be within the 

credit card subset ‘‘charge card’’ but 

would nonetheless remain in the larger 

set ‘‘credit card.’’ This would ensure 

that a hybrid debit-credit card that 

accesses covered overdraft credit offered 

by a very large financial institution 

would be subject to the same disclosure 

and other rules as other credit cards. 

3. Compulsory Use of Preauthorized 

Transfers (§ 1005.10(e)(1)) 

The CFPB proposes to apply the 

Regulation E compulsory-use 

prohibition to covered overdraft credit 

extended by very large financial 

institutions—i.e., when a very large 

financial institution provides overdraft 

credit that is subject to Regulation Z. 

Under this proposal, a very large 

financial institution that provides 

covered overdraft credit to a consumer 

could not condition the extension of 

such covered overdraft credit on the 

consumer’s agreement to repay it solely 

by preauthorized electronic fund 

transfer (EFT). In other words, the 

proposal would require a very large 

financial institution that provides 

covered overdraft credit to a consumer 

to offer the consumer at least one 

alternative repayment option in 

addition to a preauthorized EFT. 

EFTA section 903(10) defines the term 

‘‘preauthorized electronic fund transfer’’ 

as ‘‘an [EFT] authorized in advance to 

recur at substantially regular 

intervals.’’ 214 Regulation E § 1005.2(k) 

restates the statutory definition. EFTA’s 

compulsory-use prohibition, EFTA 

section 913(1), prohibits any person 

from conditioning the extension of 

credit to a consumer on the consumer’s 

repayment by means of preauthorized 

EFTs.215 However, Regulation E 

§ 1005.10(e)(1) currently includes a nonstatutory exception. Specifically, that 

section states that ‘‘[n]o financial 

institution or other person may 

condition an extension of credit to a 

consumer on the consumer’s repayment 

by preauthorized electronic fund 

transfers, except for credit extended 

under an overdraft credit plan or 

extended to maintain a specified 

minimum balance in the consumer’s 

account’’ (emphasis added).216 The 

commentary explains that, as a result of 

the exception, a financial institution 

may require the automatic repayment of 

an overdraft credit plan.217

Regulation Z section 1026.12(d)(3) 

permits a card issuer, who obtains 

written authorization from the 

cardholder, to deduct periodically a 

cardholder’s credit card debt from a 

deposit account held with the card 

issuer. Therefore, under the current 

rules, if a financial instution were to 

provide a consumer with overdraft 

credit accessible by a credit card, the 

financial institution could, with the 

consumer’s written authorization, make 

automatic periodic deductions from the 

consumer’s deposit account. Because 

periodic deductions by a creditor to 

obtain repayment of an overdraft credit 

balance occur at regular intervals, they 

are a form of preauthorized EFT and 

would be subject to the Regulation E 

compulsory-use prohibition, absent the 

extant exception for an overdraft credit 

plan provided by current 


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218See § 1005.3(c)(5)(iii), which excludes from 

the Regulation E EFT definition a transfer of funds 

between a consumer’s account and an account of 

the consumer’s financial institution, but which also 

states that these transfers remain subject to the 

§ 1005.10(e) compulsory-use prohibition. 

219See 46 FR 2972, 2973 (Jan. 13, 1981). 

220See Regulation E comment 10(e)(1)–4. 

221 46 FR 2972, 2973 (Jan. 13, 1981). 

222 Id. 

223 75 FR 7657, 7664 (Feb. 22, 2010). See also 79 

FR 77102, 77208 (Dec. 23, 2014). 

§ 1005.10(e)(1).218 It is this exception 

that the CFPB is proposing to eliminate 

for covered overdraft credit provided by 

a very large financial institution. 

In adopting the exception from the 

compulsory-use prohibition in 1981, the 

Board used its EFTA exception 

authority to exclude ‘‘overdraft credit 

plans’’ (i.e., covered overdraft credit) 

from the general EFTA compulsory-use 

prohibition.219 The CFPB’s proposal 

would revise § 1005.10(e)(1) and 

associated commentary to update that 

non-statutory exception. Under the 

CFPB’s proposal, the exception in 

§ 1005.10(e)(1) for overdraft credit plans 

would no longer apply to covered 

overdraft credit provided by a very large 

financial institution, as those terms 

would be defined in proposed 

§ 1026.62. 

Because under the proposal the 

exception would no longer apply to 

covered overdraft credit provided by a 

very large financial institution, the 

institution would be required to offer a 

consumer at least one method of 

repaying an overdraft credit balance 

other than automatic repayment by 

preauthorized EFT. For example, in 

addition to the automatic repayment 

option, the institution could offer 

consumers an option to repay their 

outstanding overdraft credit balances by 

expressly authorizing (e.g., on the 

institution’s website or smartphone 

application) a one-time transfer of funds 

from the consumer’s asset account. 

Under the CFPB’s proposal, this 

requirement to offer additional 

repayment methods would apply to any 

existing covered overdraft credit offered 

by a very large financial institution, 

including products that often are 

referred to as Regulation Z overdraft 

lines of credit. In other words, where 

such an institution today provides a 

consumer with an overdraft line of 

credit subject to Regulation Z, the 

institution, upon the compliance date of 

the CFPB’s proposal (if finalized), 

would need to begin to offer the 

consumer a way for the consumer to 

repay the consumer’s overdraft credit 

balances other than by preauthorized 

EFT. While the institution would be 

required to offer a repayment option 

other than automatic repayment, the 

institution (as today) may offer a 

reduced APR or other cost-related 

incentive for the consumer to choose the 

option of automatic repayment.220

Congress enacted the compulsory-use 

prohibition to prevent financial 

institutions and other persons that are 

creditors from mandating repayment of 

credit by preauthorized EFTs, such as 

automatic periodic deductions from 

consumers’ accounts. In turn, in 

adopting an exception to that 

prohibition for overdraft in the early 

1980s, the Board stated its belief that 

overdraft credit plans were popular with 

those consumers who had them and that 

those plans almost universally involved 

an automatic payment feature.221 The 

Board also stated that it believed that 

the cost to institutions of providing and 

maintaining a nonautomatic payment 

option was substantial and that 

requiring institutions to incur that cost 

could have an adverse impact on 

consumers, such as through reduced 

service levels or the termination of the 

overdraft service altogether.222

Covered overdraft credit plans are 

currently relatively rare.223 The CFPB 

has no reason to believe that these plans 

were available to a wider set of 

consumers in 1981 than they are now. 

Accordingly, the CFPB generally 

understands the Board’s 1981 preamble 

to indicate that covered overdraft credit 

plans were well liked at that time by 

those consumers who had access to 

them. In addition, the CFPB has 

preliminarily determined that advances 

in information technology since the 

early 1980s (when the Board adopted 

the compulsory-use exception for 

overdraft) have reduced institutions’ 

costs of obtaining repayment by means 

other than automatic repayment by 

preauthorized EFT. For example, an 

institution can establish at reasonable 

cost an internet computer or 

smartphone interface through which 

consumers may easily initiate—such as 

by tapping a ‘‘button’’ on a smartphone 

screen—monthly repayment of credit 

balances. Further, because applying the 

compulsory-use prohibition should not 

substantially increase institutions’ costs, 

applying the prohibition would not 

necessarily reduce consumers’ access to 

covered overdraft credit plans. At the 

same time, applying the compulsory-use 

prohibition to covered overdraft credit 

may allow consumers at very large 

financial institutions to retain better 

control over the funds in their asset 

accounts at those institutions. 

Specifically, applying the prohibition 

would better enable consumers to 

prioritize which of their obligations to 

pay. For example, when funds are 

deposited into the consumer’s asset 

account (such as electronic direct 

deposit of the consumer’s paycheck), 

the consumer would be able to choose 

to use those funds to pay their rent 

before subsequently repaying the 

consumer’s overdraft balance at the 

institution (using additional funds from 

the electronic direct deposit or 

subsequently deposited funds). Giving 

the consumer this choice could also 

help to reduce the consumer’s costs if 

the consumer is charged for each 

overdraft transaction and delaying 

repayment of the overdrawn amounts 

would allow the consumer to avoid a 

subsequent overdraft transaction and its 

associated charge. 

For these reasons, the CFPB has 

preliminarily determined that applying 

the compulsory-use prohibition to 

covered overdraft credit provided by a 

very large financial institution will carry 

out the purposes of EFTA by 

safeguarding consumers’ rights in 

electronic fund transfer systems. This 

preliminary determination to apply the 

compulsory-use prohibition is 

consistent with Congress’s original 

intent. Congress passed a broad 

compulsory-use prohibition, which the 

Board then narrowed due to concerns 

about costs, and which the CFPB is now 

proposing to restore in light of changed 

market circumstances (i.e., substantially 

reduced costs of alternative means of 

repayment). 

Non-Covered Overdraft Credit 

As noted, the Regulation E 

compulsory-use prohibition prohibits 

conditioning credit extensions on 

consumers’ repayment by preauthorized 

EFT. As discussed in this proposal, all 

overdraft is credit, irrespective of 

whether the overdraft is or is not subject 

to Regulation Z. Nonetheless, the 

compulsory-use prohibition has 

historically been interpreted as not 

applying to overdraft credit that is not 

subject to the requirements of 

Regulation Z (notwithstanding that noncovered overdraft credit is credit). 

Specifically, in 1980 the Board stated its 

belief that the compulsory-use 

prohibition does not apply to overdraft 

credit that is not covered by Regulation 

Z because, with respect to that 

overdraft, banks take consumers’ 

repayments through immediate offset 

(which does not occur at regular 

intervals), rather than through 

preauthorized EFTs that consumers 

authorize in advance to recur at 


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224See 45 FR 66348, 66348 (Oct. 6, 1980) (‘‘Other 

[i.e., non-covered] plans have automatic debiting 

whenever funds are deposited into the consumer’s 

account, and do not have a fixed periodic or 

recurring payment schedule. It is the Board’s 

opinion that these [non-covered] plans are already 

in compliance with section 913, because they do 

not require the consumer to agree to repayment by 

preauthorized transfers, which are defined in the 

act and regulation as transfers ‘authorized in 

advance to recur at substantially regular 

intervals.’’’). 

225See Regulation Z comment 12(d)(1)–2 

(describing offset as when ‘‘the consumer tenders 

funds as a deposit . . . [and] the card issuer . . . 

appl[ies] the funds to repay indebtedness on the 

consumer’s credit card account’’). 

226The term ‘‘card issuer’’ is defined in 12 CFR 

1026.2(a)(7) as ‘‘a person that issues a credit card 

or that person’s agent with respect to the card.’’ 

227The term ‘‘credit card’’ is defined in 12 CFR 

1026.2(a)(15)(i) as ‘‘any card, plate, or other single 

credit device that may be used from time to time 

to obtain credit.’’ 228See Regulation Z comment 12(d)(1)–3. 

substantially regular intervals.224 Under 

the Board’s historical reasoning, a 

financial institution providing noncovered overdraft credit does not need 

access to the above-described exception 

for overdraft credit plans from the 

compulsory-use prohibition, because 

the institution’s non-covered overdraft 

credit is not subject to the compulsoryuse prohibition in the first place 

(because the institution takes repayment 

at irregular intervals, whenever the next 

deposit is received, rather than at 

regular intervals). 

The CFPB is not proposing to revisit 

this longstanding interpretation. That is, 

under the CFPB’s proposal, it will 

remain the case that non-covered 

overdraft credit that obtains repayment 

through offset, such as the typical 

overdraft service as defined in 

§ 1005.17(a), is not subject to the 

compulsory-use prohibition. Therefore, 

a very large institution providing noncovered overdraft at or below breakeven 

pricing may continue to take repayment 

of a consumer’s overdraft balance 

immediately upon the institution’s 

receipt of the next deposit to the 

consumer’s account, just as institutions 

typically do today, if done in 

compliance with applicable law. 

Under the CFPB’s proposal, however, 

overdraft credit, including an overdraft 

service as that term is defined in 

Regulation E, that is provided by a very 

large financial institution, would only 

remain not covered by Regulation Z’s 

requirements—and thus outside the 

Regulation E compulsory-use 

prohibition—if the institution provides 

its overdraft credit to consumers for a 

price that is at or below the institution’s 

breakeven price for providing the credit. 

In other words, if the price of such 

institution’s overdraft credit is above its 

costs and losses, then, under the CFPB’s 

proposal, the credit is covered overdraft 

credit that is not excepted from 

Regulation Z and is therefore subject to 

the Regulation Z offset prohibition. 

Accordingly, under the CFPB’s 

proposal, the institution would be 

required to obtain repayment only 

periodically (pursuant to the offset 

prohibition) and to comply with the 

Regulation E compulsory-use 

prohibition (in addition to complying 

with Regulation Z). As previously 

noted, the CFPB’s proposal does not 

apply to non-covered or covered 

overdraft credit provided by an 

institution other than a very large 

financial institution. As now, where 

such an institution provides noncovered overdraft credit, including an 

overdraft service, the overdraft credit is 

not subject to the Regulation E 

compulsory-use prohibition. Further, as 

now, where such an institution provides 

an overdraft credit plan that is subject 

to Regulation Z, the institution’s 

overdraft credit plan retains access to 

the current § 1005.10(e)(1) exception 

from the compulsory-use prohibition for 

overdraft credit plans. 

i. The Offset Prohibition in 12 CFR 

1026.12(d)(1) 

While the CFPB is not proposing to 

amend the Regulation Z prohibition 

against offset, it is closely related to the 

Regulation E compulsory-use 

prohibition discussed above; thus, the 

CFPB briefly discusses it here for 

clarity. 

‘‘Offset’’ is a term used to describe a 

practice whereby a depository 

institution uses funds from an incoming 

deposit to a consumer’s asset account at 

the institution to immediately obtain 

repayment of the consumer’s debt to the 

institution, such as an overdraft.225

‘‘Offset’’ is a permitted practice in the 

context of non-covered overdraft that is 

not subject to Regulation Z. In that 

context, as described above, an 

institution may use deposited funds 

immediately upon receipt to obtain 

repayment of, or ‘‘offset’’ against, the 

consumer’s overdraft balance owed to 

the institution. 

Offset is prohibited by TILA section 

169(a) (15 U.S.C. 1666h(a)) and 12 CFR 

1026.12(d)(1). The statutory and 

regulatory offset prohibition applies to a 

‘‘card issuer,’’ 226 which is a person that 

issues a ‘‘credit card.’’ 227 When an 

institution offers an overdraft credit 

plan subject to Regulation Z, that plan 

is covered overdraft credit. If the 

covered overdraft credit is accessible by 

a debit card, the debit card is a credit 

card, the institution that provides the 

card is a card issuer, and the covered 

overdraft credit is subject to the 

Regulation Z prohibition against offset. 

The CFPB is not proposing to amend 

the offset prohibition in Regulation Z. 

Thus, when a very large financial 

institution provides a covered overdraft 

credit account that is accessible by a 

card (i.e., a hybrid debit-credit card), the 

institution must comply with the offset 

prohibition. In particular, 12 CFR 

1026.12(d)(1) prohibits the institution 

(as a card issuer) from taking any action, 

either before or after termination of 

credit card privileges, to offset a 

consumer’s indebtedness (such as an 

overdraft balance) that arises from a 

credit card plan (such as a covered 

overdraft credit account) against the 

consumer’s funds (such as funds in a 

covered asset account) held on deposit 

with the institution. 

Further, per comment 12(d)(1)–3, the 

offset prohibition applies to any 

indebtedness arising from transactions 

under a credit card plan (such as a 

covered overdraft credit account 

accessible by a hybrid debit-credit card), 

including accrued finance charges and 

other charges on the account. The 

prohibition also applies to balances 

arising from transactions not using the 

card itself but taking place under plans 

that involve a credit card. For example, 

if the consumer writes a check that 

accesses an overdraft line of credit 

(which is a type of covered overdraft 

credit account), the resulting 

indebtedness is subject to the offset 

prohibition since it is incurred through 

a credit card plan.228

ii. Periodic Deductions Permitted by 12 

CFR 1026.12(d)(3) 

Periodic deductions are a different 

practice than offset. TILA section 

169(a)(1) (15 U.S.C. 1666h(a)(1)) permits 

a card issuer to periodically deduct all 

or part of a consumer’s credit card debt 

from the consumer’s asset account if the 

periodic deductions are in accordance 

with the consumer’s preauthorized 

written agreement. This TILA provision 

is implemented in 12 CFR 1026.12(d)(3). 

The CFPB is not proposing to amend 

12 CFR 1026.12(d)(3). Thus, when a 

very large financial institution provides 

covered overdraft credit that is 

accessible by a card, the institution (as 

a card issuer) must comply with the 

offset prohibition (§ 1026.12(d)(1), 

discussed above), but may obtain a 

consumer’s preauthorized written 

agreement to periodic deductions of the 

consumer’s overdraft balances from the 

consumer’s asset balances held at the 

institution. These deductions must be 

‘‘periodic’’ to be permitted under 


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229 81 FR 83934, 84213 (Nov. 22, 2016). 

§ 1026.12(d)(3); that is, the deductions 

must occur at regular intervals. Because 

the deductions must occur at regular 

intervals, they are, as discussed above, 

a form of preauthorized EFT and are 

subject to the Regulation E compulsoryuse prohibition. Further, because the 

deductions are subject to that 

prohibition, under the CFPB’s proposal, 

as discussed, a very large financial 

institution providing covered overdraft 

credit must offer consumers a means of 

repayment other than periodic 

deduction. In other words, even when a 

very large institution (as a card issuer) 

obtains a consumer’s written agreement 

to periodic deductions as permitted by 

§ 1026.12(d)(3), the institution may not 

adopt a practice of immediately taking 

funds from any incoming deposit in 

repayment of the consumer’s overdraft 

balance, because doing so would run 

afoul of the offset prohibition in 

§ 1026.12(d)(1). Moreover, when 

obtaining written agreement for periodic 

deductions, the very large financial 

institution must offer the consumer 

another repayment option, consistent 

with the prohibition against compulsory 

use discussed earlier in this section. 

iii. Summary of Compliance With the 

Compulsory-Use Prohibition, Offset 

Prohibition, and Permitted Periodic 

Deduction Under the CFPB’s Proposal 

As discussed above, the CFPB is 

proposing to apply the Regulation E 

compulsory-use prohibition to covered 

overdraft credit provided by a very large 

financial institution. Further, the CFPB 

is not proposing to amend the 

Regulation Z prohibition against offset, 

nor is the CFPB proposing to amend the 

Regulation Z provision permitting 

periodic deductions. Therefore, when 

such an institution provides covered 

overdraft credit that is accessible by a 

card, the institution must comply with 

the Regulation E compulsory-use 

prohibition and the Regulation Z offset 

prohibition, and may obtain the 

consumer’s voluntary agreement to 

repayment by periodic deduction from 

the consumer’s asset account at the 

institution. 

Pursuant to the Regulation Z offset 

prohibition, the institution may not 

adopt a practice of immediately taking 

funds from any incoming deposit in 

repayment of the consumer’s overdraft 

balance. Pursuant to the Regulation Z 

provision permitting periodic 

deductions, the institution may obtain 

the consumer’s written agreement to the 

institution’s obtaining repayment of the 

consumer’s overdraft balance through 

automatic periodic deductions from the 

consumer’s covered asset account. 

However, pursuant to the Regulation E 

compulsory-use prohibition, the 

institution must provide the consumer 

with a repayment option other than 

automatic periodic deduction. For 

example, the institution could provide 

the repayment option of permitting the 

consumer to authorize one-time EFTs to 

make payments against their overdraft 

balance. Also pursuant to the 

compulsory-use prohibition, the 

institution may provide a reduced APR 

or other cost-related incentive for the 

consumer to choose the option of 

repayment by periodic deduction. 

Request for Comment—Defining 

‘‘Periodic’’ 

In its 2016 Prepaid Final Rule, the 

CFPB defined ‘‘periodically’’ in 

§ 1026.12(d)(3) for purposes of a credit 

feature accessible by a hybrid prepaidcredit card to mean no more frequently 

than once per calendar month. The 

CFPB stated that it was concerned that 

some issuers of hybrid prepaid-credit 

cards would attempt to circumvent the 

offset prohibition in § 1026.12(d)(1) by 

obtaining a consumer’s written 

authorization to deduct all or part of the 

cardholder’s credit card debt on a daily 

or weekly basis from the prepaid 

account to help ensure that the debt is 

repaid.229 The CFPB stated that issuers 

of hybrid prepaid-credit cards might 

obtain a consumer’s written 

authorization to daily or weekly debits 

given the overall creditworthiness of 

prepaid accountholders who rely on 

covered separate credit features. In 

addition, the CFPB believed that 

prepaid consumers might grant the 

authorization more readily than other 

credit cardholders because these 

consumers may believe that providing 

such authorization is required. While 

the CFPB acknowledged that an 

appropriate interval for periodic 

deductions may depend on the facts and 

circumstances, the CFPB determined 

that § 1026.12(d)(3)—defining 

periodically as no more frequently than 

once per calendar month—would fully 

effectuate the intent of the compulsoryuse and offset prohibitions and would 

allow consumers to retain control over 

the funds in their prepaid accounts even 

when a covered separate credit feature 

accessible by a hybrid prepaid-credit 

card becomes associated with that 

account. 

The CFPB believes that similar issues 

are also present in the context of 

covered overdraft credit accounts tied to 

covered asset accounts. In particular, 

the CFPB believes that institutions 

providing such accounts might attempt 

to circumvent the offset prohibition by 

obtaining a consumer’s written 

authorization to deduct all or part of the 

consumer’s debt on a daily or weekly 

basis to help ensure that the debt is 

repaid. Further, the CFPB believes that 

consumers using these accounts, such as 

frequent overdrafters, would generally 

be more vulnerable than other 

consumers and that, in light of their 

vulnerability, these consumers might 

grant such authorization more readily 

than other consumers, because they 

believe that the authorization is 

required to obtain the accounts. At the 

same time, the CFPB acknowledges that 

it is possible that a periodic deduction 

period shorter than one month might be 

appropriate in some circumstances. 

Specifically, it is possible that some 

consumers might have difficulty 

managing repayment of credit balances 

and that these consumers might benefit 

from periodic deductions that occur 

more frequently than once per month. 

The CFPB requests comment on 

whether in its final rule it should define 

‘‘periodically’’ to mean no more 

frequently than once per calendar 

month or some other interval for 

covered overdraft credit accounts tied to 

covered asset accounts. 

4. Definition of Overdraft Services in 

Regulation E (§ 1005.17(a)) 

Section 1005.17(a) currently defines 

‘‘overdraft service’’ to mean a service 

under which a financial institution 

assesses a fee or charge on a consumer’s 

account held by the institution for 

paying a transaction (including a check 

or other item) when the consumer has 

insufficient or unavailable funds in the 

account. Section 1005.17(a)(1) also 

provides that the term ‘‘overdraft 

service’’ does not include any payment 

of overdrafts pursuant to a line of credit 

subject to Regulation Z, including 

transfers from a credit card account, 

home equity line of credit, or overdraft 

line of credit. The CFPB is proposing to 

add comment 17(a)–2 to clarify that the 

newly defined terms under this 

proposal do not change the scope of the 

definition of overdraft services under 

§ 1005.17(a). Specifically, the proposed 

comment would clarify that covered 

overdraft credit, which includes above 

breakeven overdraft credit, is not an 

overdraft service under § 1005.17(a) 

because it is a line of credit subject to 

Regulation Z. When consumers at very 

large financial institutions are offered 

covered overdraft credit, that covered 

overdraft credit would not be subject to 

the Regulation E opt-in requirement for 

non-covered debit card overdraft. 


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13886 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

230 15 U.S.C. 1604(d). 

VI. Proposed Effective Date 

Consistent with TILA section 105(d), 

the CFPB proposes that a final rule 

relating to this proposal would have an 

effective date of the October 1 which 

follows by at least six months the date 

it is published in the Federal 

Register.230 The Bureau seeks comment 

on the proposed effective date including 

whether it should be at a different time, 

and if so, when and why. 

As discussed above, the CFPB’s 

proposed rule would, if finalized, apply 

only to very large financial institutions. 

Accordingly, financial institutions that 

are not very large institutions would not 

need to make any changes in response 

to the proposed rule were it to be 

finalized. 

With respect to very large financial 

institutions, the changes that the 

proposed rule would require, if 

finalized, would vary depending on the 

very large financial institution’s 

activities. If a very large financial 

institution currently offered noncovered overdraft services in 

compliance with existing regulations 

and, in response to the rule, it chose to 

provide those services at or below its 

breakeven price, it could continue to 

provide such services without making 

any operational changes in response to 

the rule apart from developing a process 

to confirm that its pricing for such 

services complied with either the rule’s 

benchmark fee or breakeven standard 

provisions. 

If a very large financial institution 

currently offered non-covered overdraft 

services in compliance with existing 

regulations and, in response to the rule, 

chose to provide above-breakeven 

overdraft credit, it would need to ensure 

that such credit complied with 

Regulation Z. However, if the very large 

financial institution were unable to 

bring a Regulation Z compliant abovebreakeven overdraft credit program to 

market before the effective date of a 

final rule, the institution still could 

comply with the rule by delaying, for as 

long as it wishes, the point in time at 

which it began to offer above-breakeven 

overdraft credit to consumers. Finally, if 

a very large financial institution 

currently offered covered overdraft 

credit in compliance with Regulation Z 

and, in response to the rule, chose to 

continue offering such credit, the very 

large financial institution would need to 

comply with the rule by: (1) treating 

transfer fees as finance charges, or 

eliminating those fees, (2) offering 

consumers a means of repaying their 

overdrafts other than by preauthorized 

EFTs, and (3) beginning to comply with 

the regulatory provisions in Regulation 

Z that apply to credit cards that would 

newly apply to certain types of covered 

overdraft credit. 

The CFPB believes that the proposed 

effective date should be sufficient for a 

very large financial institution to make 

these changes. 

VII. Severability 

The CFPB preliminarily intends that, 

if any provision of the proposed rule, if 

adopted as final, or any application of 

a provision, is stayed or determined to 

be invalid, the remaining provisions or 

applications are severable and shall 

continue in effect. 

VIII. CFPA Section 1022(b) Analysis 

A. Overview 

In developing this proposed rule, the 

CFPB has considered the proposed 

rule’s potential benefits, costs, and 

impacts per section 1022(b)(2)(A) of the 

Consumer Financial Protection Act of 

2010 (CFPA). The CFPB requests 

comment on the preliminary analysis 

presented below and submissions of 

more data that could inform the CFPB’s 

analysis of the potential benefits, costs, 

and impacts. In developing the 

proposed rule, the CFPB has consulted 

or offered to consult with the 

appropriate prudential regulators and 

other Federal agencies, including about 

the consistency of this proposed rule 

with any prudential, market, or systemic 

objectives administered by those 

agencies, in accordance with section 

1022(b)(2)(B) of the CFPA. The CFPB 

also consulted with agencies described 

in TILA section 149. 

The goal of this proposed rule is to 

allow more consumers to better compare 

certain overdraft credit to other types of 

credit and to provide consumers with 

several substantive protections that 

already apply to other consumer credit, 

while still encouraging the availability 

of overdraft coverage. The section 

proceeds as follows. First, it describes 

data limitations and the quantification 

of benefits, costs, and impacts. Second, 

it presents the baseline for its analysis. 

Third, it goes through the potential 

benefits and costs, first to consumers 

and then to covered persons, of the 

proposed changes that affect charges for 

non-covered and covered overdraft. 

Fourth, the section turns to the benefits, 

costs, and impacts of further provisions 

of the proposed rule. Fifth and sixth, it 

summarizes specific impacts on 

financial institutions with $10 billion in 

assets or less and on consumers in rural 

areas, respectively. 

B. Data Limitations and Quantification 

of Benefits, Costs, and Impacts 

The discussion below relies on 

information that the CFPB has obtained 

from industry, other regulatory agencies, 

and publicly available sources, 

including reports published by the 

CFPB. These sources form the basis for 

the CFPB’s consideration of the likely 

impacts of the proposed rule. The CFPB 

provides estimates, to the extent 

possible, of the potential benefits and 

costs to consumers and covered persons 

of this proposal given available data. 

Specifically, this discussion is based 

on the CFPB’s analysis of public Call 

Reports and other publicly available 

data sources, internal data from 

multiple supervisory information 

requests, as described in part II above, 

as well as research reports published by 

the CFPB. The CFPB also consulted the 

academic literature and policy analyses 

of United Kingdom and State regulators. 

The CFPB acknowledges several 

important limitations that prevent a full 

determination of benefits, costs, and 

impacts. Quantifying the benefits, costs, 

and impacts requires quantifying 

consumer and depository institution 

responses to the proposed changes, and 

the CFPB finds the body of knowledge 

on relevant behavioral responses and 

elasticities incomplete. In particular, the 

CFPB is not aware of evidence that 

could be used to predict how changes to 

overdraft pricing would affect negative 

balance periods or the expected 

substitution effects across asset accounts 

and between deposit accounts with 

overdraft coverage and other forms of 

credit, including the consumer harm 

from delaying or forgoing some 

transactions. Similarly, the CFPB 

believes there is little reliable 

quantitative evidence available on the 

cost and effectiveness of steps financial 

institutions might take to facilitate 

clients’ money management or timely 

repayment on overdrawn accounts; 

reprice any of their services; remunerate 

their staff, suppliers, or sources of 

capital differently; or enter or exit any 

or all segments of the checking account 

market. Thus, while the data and 

research available to the CFPB provide 

an important basis for understanding 

the likely effects of the proposal, the 

data and research are insufficient to 

fully quantify the potential effects of the 

proposal for consumers and very large 

financial institutions. This reflects, in 

part, the fact that the effects of the 

proposal would depend on choices 

made by independent actors in response 

to the proposal, and the data and 

research available to the CFPB do not 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13887 

231 In narrative responses to supervisory 

information requests, financial institutions 

generally stated that discretionary overdraft fees are 

set using factors such as: (1) the direct and indirect 

cost of offering OD services, (2) deterrence effects, 

(3) positioning with respect to other competitors, (4) 

customer feedback, experiences, and utility, (5) 

regulatory requirements and (6) safety and 

soundness concerns. CFPB 2024 Overdraft NSF 

Report at 11. 

232This information is reported in Schedule RI, 

Memorandum item 15.a on the FFIEC 031 and 041 

forms, as of September 2023. For most institutions, 

this definition also includes fees associated with 

sustained negative balances. Few charges related to 

overdraft transactions are reported as net interest 

revenue, if any. 

233CFPB 2014 Data Point at 10 tbl.2. 

234CFPB October 2023 Data Spotlight. 

allow reliable predictions of those 

choices. 

In light of these data limitations, the 

analysis below provides quantitative 

estimates where possible and a 

qualitative discussion of the proposed 

rule’s benefits, costs, and impacts. 

General economic principles and the 

CFPB’s expertise, together with the 

available data, provide insight into these 

benefits, costs, and impacts. The CFPB 

requests additional data or studies that 

could help quantify the benefits and 

costs to consumers and covered persons 

of the proposed rule. 

C. Baseline for Analysis 

To evaluate the proposal’s benefits, 

costs, and impacts, the CFPB measures 

the proposal’s benefits, costs, and 

impacts against a baseline in which the 

CFPB would take no action. This 

baseline assumes existing regulations 

remain in place and that market 

conditions in the overdraft market do 

not change from their current state. 

The discussion below assumes that, 

without action, both the overdraft credit 

market and the broader consumer 

checking market would function in the 

manner understood through past CFPB 

research, external academic literature, 

and supervisory activity. The CFPB 

bases its prediction for the baseline on 

market conditions and market data from 

the 2022 calendar year. As a result, its 

baseline reflects changes to the overdraft 

market through 2022, including changes 

to checking account pricing (both fee 

and net interest revenue) and changes to 

the speed, cost, availability, and 

prevalence of payment systems. The 

CFPB sees that the market is changing 

rapidly and might continue to do so 

absent the rule, but for purposes of the 

baseline the CFPB generally uses data 

from the most recent full calendar year 

to characterize the status quo. 

D. Potential Benefits and Costs to 

Consumers and Covered Persons of the 

Proposed Changes That Affect Charges 

for Non-Covered and Covered Overdraft 

Credit 

1. Potential Benefits and Costs to 

Consumers 

In addition to other changes discussed 

later in this section and to the further 

changes discussed in the following 

section, the proposal would apply 

Regulation Z to above breakeven 

overdraft credit that is currently 

excepted from the regulation (i.e., it is 

currently non-covered overdraft credit). 

Overdraft credit is above breakeven 

overdraft credit when a very large 

financial institution imposes a charge or 

combination of charges for such credit 

that exceeds the greater of either the 

average of the institution’s costs and 

losses for providing non-covered 

overdraft credit (as defined in the 

proposal) or the benchmark fee 

published by the CFPB. The CFPB 

anticipates that its proposal generally 

would benefit consumers in two ways. 

First, some very large financial 

institutions may reduce their fees so 

that they can continue offering noncovered overdraft credit. In general, 

lower overdraft fees for non-covered 

overdraft credit would benefit 

consumers by reducing the amount they 

pay through these fees. Second, some 

financial institutions may continue 

offering above breakeven overdraft 

credit and apply the Regulation Z 

regulatory framework. In general, 

applying the Regulation Z regulatory 

framework to above breakeven overdraft 

credit would benefit consumers by 

promoting their informed use of such 

credit and by applying TILA’s 

substantive protections. The CFPB’s 

analysis may underestimate or 

overestimate the proposal’s benefits to 

consumers depending on how various 

market participants, such as financial 

institutions covered by the proposal, 

entities not covered by the proposal, 

and consumers, respond to the proposal. 

The discussion below begins with an 

analysis of the proposal’s direct benefits 

to consumers assuming that very large 

financial institutions comply with the 

proposal by lowering their fees for noncovered overdraft credit. The discussion 

then considers how other potential 

responses by very large financial 

institutions could impact the proposal’s 

direct benefits to consumers. Next, the 

discussion considers how the proposal 

might impact consumer behavior, 

including demand for both covered and 

non-covered overdraft credit, demand 

for alternative credit products, and 

deposit behavior. Finally, the discussion 

briefly considers how institutions not 

covered by the proposal may respond to 

the proposal. 

i. Estimated Savings to Consumers if 

Very Large Financial Institutions All 

Use the CFPB’s Proposed Benchmark 

Fee or Breakeven Standard 

Under the proposal, overdraft credit 

offered by very large financial 

institutions that currently is noncovered overdraft credit could remain 

non-covered overdraft credit if the pertransaction price for such credit were 

less than or equal to the benchmark fee 

established by the CFPB. Consequently, 

if all very large financial institutions 

were to use the benchmark fee to 

comply with the rule, the proposal’s 

direct benefits to consumers, assuming 

no change in overdraft frequency, could 

be as high as the difference between the 

total fees currently paid by consumers 

for non-covered overdraft credit and the 

total fees they would pay if non-covered 

overdraft credit were priced at the 

benchmark fee. 

Today, fees for non-covered overdraft 

credit are generally greater than $30 per 

transaction.231 Under the proposal, fees 

for any non-covered overdraft product 

provided by a very large financial 

institution would be substantially 

lower. From Call Report data, the CFPB 

estimates that consumers paid $5.98 

billion in overdraft fees to very large 

banks and thrifts in 2022. For this 

estimate, the CFPB started with CFPBsupervised banks’ total reported 

consumer overdraft-related service 

charges levied on those transaction 

account and non-transaction savings 

account deposit products intended 

primarily for individuals for personal, 

household, or family use.232 This 

amount was $6.42 billion in 2022, 

including fee revenue from both 

overdraft and NSF transactions. In prior 

work, the CFPB has estimated that, 

between January 2011 through June 

2012, 18.9 percent of such revenue at 

several very large financial institutions 

was NSF fee revenue.233 However, most 

of the largest banks eliminated NSF fees 

during 2022; the CFPB estimates that 

nearly two-thirds of supervised banks 

had eliminated NSF fees by mid-2023, 

representing an estimated 97 percent of 

annual NSF fee revenue earned by those 

institutions.234 For purposes of this 

analysis, the CFPB estimates that the 

NSF fee share in 2022 was half as large 

as the earlier 18.9 percent share, so 

supervised banks’ overdraft fees would 

be 90.55 percent of the 2022 fee total, 

or $5.81 billion. This total does not 

include fee revenue from credit unions 

that are very large financial institutions, 

since credit union call reports do not 

include data on overdraft fee 


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13888 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

235Some state-charted credit unions reported 

substantial overdraft revenue under California’s 

Financial Code Section 521. See Dep’t of Fin. Prot. 

& Innovation, Annual Report of Income from Fees 

on Nonsufficient Funds and Overdraft Charges 

(Mar. 2023), https://dfpi.ca.gov/wp-content/ 

uploads/sites/337/2023/04/Annual-Report-ofIncome-from-Fees-on-Nonsufficient-Funds-andOverdraft-Charges_2023.pdf (DFPI 2023 Report). 

236See CFPB 2021 Data Point at 7 (estimating 

combined overdraft/NSF revenue for credit unions 

and for banks with less than $1 billion in assets 

using 2014 data collected from core processors for 

the number of accounts by asset size and the 

overdraft/NSF revenue per account, and from 2014 

call report data for distribution of institutions by 

asset size, and then assuming that overdraft/NSF 

revenue at small institutions saw the same growth 

from 2014 to 2019 as at large banks to arrive at the 

2019 estimates). For purposes of this analysis, we 

assume that banks with assets over $1 billion, banks 

with assets below $1 billion, and all credit unions 

represent the same relative portions of total 

marketwide overdraft/NSF revenue in 2022 as they 

did in 2019. 

237The CFPB requested information about some 

very large financial institutions’ 2022 overdraft 

practices. For those institutions with available data 

on the number of instances of non-covered 

overdraft when the institution charged a fee, the 

reported weighted average fee amount was $32.50. 

CFPB 2024 Overdraft NSF Report. Based on the 

CFPB’s review of publicly available information 

between December 2022 and July 2023, the 

unweighted median non-covered overdraft fee 

amount across all very large financial institutions 

was $35. Past CFPB research publications have 

reported the median non-covered overdraft fee as 

$35; this median was also based on data from very 

large financial institutions. A $35 fee is higher than 

the $25.77 fee recently reported by the New York 

State Department of Financial Services for 2022 

based on a surveyed entities, most of which would 

not be subject to this proposal. See N.Y. State Dep’t 

of Fin. Servs., Consumer Fee Practices in New York 

(July 14, 2023), https://www.dfs.ny.gov/system/ 

files/documents/2023/07/rpt_20230714_consumer_

fee_practices_nys.pdf. The Department of Financial 

Protection and Innovation of the State of California 

annually tabulates State-chartered banks’ and credit 

unions’ revenue from overdraft charges but not the 

fee amounts. See DFPI 2023 Report Note that to the 

extent market revenue or fees for very large 

financial institutions were lower by the effective 

date of the proposed rule, the proportional drop 

from a smaller market total would amount to less 

than these extrapolations from 2022 market revenue 

totals and fees. Bankrate’s 2023 checking account 

and ATM fee survey reports that the average 

overdraft fee was 11 percent lower than a year 

before, https://www.bankrate.com/banking/ 

checking/checking-account-survey/ (last visited Jan. 

7, 2024). 

238This assumption approximates the situation 

where overdraft transactions are inadvertent (a 

fixed quantity demanded) and always met at the 

prevailing price, even after the supply curve shifts 

downward with the benchmark fee. As discussed 

elsewhere, this outcome is unlikely to hold exactly. 

Consumers might be less attentive to avoid 

overdraft when it is cheaper, though many might 

have larger buffers if earlier fees have depleted their 

account balances less than they would under the 

baseline. Financial institutions might also meet 

demand only at higher prices, applying the 

breakeven standard approach or offering covered 

overdraft credit instead. 

revenue.235 To estimate overdraft 

revenue earned by CFPB-supervised 

(very large) credit unions, the CFPB 

estimates the overdraft revenue earned 

by all credit unions and distributes that 

estimated revenue to credit unions 

above and below $10 billion in assets 

based on those groups’ relative share of 

member shares and deposits. The CFPB 

has estimated that overdraft revenue 

reported by banks with over $1 billion 

in assets comprises approximately 77 

percent of the total overdraft/NSF 

revenue earned by banks and credit 

unions combined, while credit union 

overdraft/NSF revenue comprises 

approximately 15 percent of such 

revenue (overdraft/NSF revenue of 

banks under $1 billion in assets 

comprises approximately 7 percent of 

such revenue).236 Banks with more than 

$1 billion in assets reported $7.72 

billion in overdraft/NSF revenue in 

2022, 90.55 percent or $7.00 billion of 

which the CFPB estimates is overdraft 

revenue for reasons explained above. 

Assuming this $7.00 billion represents 

77 percent of the market total overdraft 

revenue, the CFPB estimates that credit 

unions earned 15 percent of the total, or 

$1.43 billion in overdraft revenue in 

2022. At the end of 2022, very large 

credit unions held 24.1 percent of all 

member shares and deposits held by 

federally insured credit unions. 

Applying this 24.1 percent to $1.43 

billion, the CFPB estimates that very 

large credit unions earned $0.34 billion 

in overdraft fees in 2022, and that very 

large financial institutions collectively 

earned $6.16 billion. 

From information requests by the 

CFPB, it estimates the average overdraft 

fee amount to be $32.50.237 The CFPB 

initially assumes that a reduction in the 

fee for non-covered overdraft credit 

would affect neither the quantity of 

credit demanded nor the quantity 

supplied, meaning that the application 

of the benchmark fee across the entire 

market would imply mechanical savings 

for consumers, unaffected by behavioral 

responses.238 As discussed in part 

V(D)(2)(v), the CFPB has proposed four 

alternative values for the benchmark 

fee—$3, $6, $7, and $14. Assuming each 

proposed value would effectively be the 

new average fee across the market, the 

decline of the market total revenue 

would be proportional to the decline in 

the average fee amount. Thus, using a 

2022 baseline, a $3 fee would have 

saved consumers $5.6 billion (90.8 

percent of the 2022 total) annually, a $6 

fee $5.0 billion (81.5 percent of the 

total), a $7 fee $4.8 billion (78.5 percent 

of the total), and a $14 fee $3.5 billion 

(56.9 percent of the total) in a calendar 

year. 

Savings from lower fees would be 

particularly valuable in cases when they 

protect liquidity at times when the 

consumer needs it most. Consumers 

with low balances may deplete their 

asset account less frequently if they 

have paid less in overdraft fees in the 

past, and thus their asset account 

recovered to a higher balance after a 

sufficiently large deposit. Moreover, if 

fees, in particular multiple or cascading 

fees, deplete less of the buffer the 

depository institution is willing to lend 

to the consumer (i.e., the shadow line of 

their non-covered overdraft credit), the 

consumer might be able to cover more 

or larger transactions with it when they 

have depleted their asset account. The 

same shadow line would permit more 

consumption. Current users of noncovered overdraft credit would enjoy 

similar benefits even if they end up with 

substitute products like covered 

overdraft credit, or linked asset or credit 

accounts, as long as the new source of 

liquidity is cheaper than non-covered 

overdraft is currently. 

A large reduction in fees for noncovered overdraft could reduce some 

operating costs associated with 

complaints, collections, and account 

closures. Such benefits to covered 

persons do not need to reflect an equal 

but opposite pecuniary cost to 

consumers. Fewer complaints, 

collections, or account closures can save 

money for both the accountholder and 

the depository institution, who 

somehow split the value that would 

have been spent otherwise. These gains 

would mitigate some losses covered 

persons suffer from lower fee revenue, 

so they lose less on net, in total. The 

CFPB understands from its general 

monitoring activities that complaints 

fell by 70 percent or more at depository 

institutions that radically decreased 

overdraft fees recently. With lower fees 

and charges, the CFPB expects more 

non-covered or covered overdraft credit 

accounts to recover from negative 

balance episodes. 

Very large financial institutions with 

per-incident costs and losses traceable 

to overdrawing transactions above the 

benchmark fee would have an incentive 

to set fees for non-covered overdraft 

using the breakeven standard described 

at proposed § 1026.62(d)(1)(i). 

Consumer gains when very large 

financial institutions with per-incident 

costs and losses above the benchmark 

fee use the breakeven standard would be 

less as their fee would not drop all the 

way to the benchmark fee. The gains for 

consumers would be even smaller if the 

application of the breakeven standard 

imposes additional administrative costs 

on the institutions who use it, and, in 

turn, those institutions shift some of 

these costs to their customers. However, 

the CFPB expects these administrative 

costs to be small compared to revenue. 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13889 

239FinHealth Spend Research Reports from 2021, 

2022 and 2023 have estimated that 17 percent of 

responding households have paid an overdraft fee 

in the prior twelve months between November 2021 

and January 2023. See generally, FHN, Market 

Analysis: FinHealth Spend Research—Latest 

Research, https://finhealthnetwork.org/finhealthspend-research/ (last visited Jan. 7, 2024). 

240See CFPB Fall 2023 Highlight; see also CFPB 

2014 Data; CFPB 2017 Data Point. 

241Oz Shy & Joanna Stavins, Who Is Paying All 

These Fees? An Empirical Analysis of Bank 

Account and Credit Card Fees (Fed. Rsrv. Bank of 

Bos., Working Paper No. 22–18, 2022), https://

www.bostonfed.org/-/media/Documents/ 

Workingpapers/PDF/2022/wp2218.pdf. 

242 Institutions authorize and pay transactions 

that they are contractually obligated to, such as 

‘‘authorize positive, settle negative’’ (APSN) 

transactions, since under applicable payment 

system rules, once a transaction is authorized, the 

financial institution must pay the transaction. 

Pursuant to the CFPA, charging an overdraft fee on 

such transactions can be unfair. 

243 In response to supervisory information 

requests, financial institutions said that when 

setting limits for discretionary overdraft they 

consider factors that could be relevant both to the 

risk of charge off and to the lifetime value of the 

customer, including (1) age of the account, (2) 

available balance, (3) account transaction activity 

and history, (4) standing of the account, and (5) 

existence of direct deposits. CFPB 2024 Overdraft 

NSF Report at 8. 

Data produced in response to the 

CFPB’s supervisory information 

requests on 2022 overdraft practices 

suggest that, for benchmark fee levels 

less than $14, at least some very large 

financial institutions would have 

traceable costs and losses per overdraft 

fee charged greater than the benchmark 

fee level, such that they could find it 

more advantageous to use the breakeven 

standard. The CFPB has less data on the 

costs and losses of other very large 

financial institutions, whose costs and 

losses (mostly their charge-off losses) 

may be higher than for some institutions 

in its supervisory information request 

collection. However, because the costs 

and losses of providing non-covered 

overdraft are driven largely by credit 

losses, and because these losses depend 

on underwriting policies, which, as 

discussed below, very large financial 

institutions likely would change in 

response to the proposed rule, current 

cost and loss levels may not be a reliable 

indicator of future cost and loss levels 

assuming the proposed rule were 

finalized. 

Overdraft fees are incurred by 

consumers in an estimated 17 percent of 

households annually.239 Among these, 

the consumers who would benefit most 

from the proposal are those that incur 

the largest number of overdraft fees. 

Thus, a change in fee amounts would 

have an outsized impact on specific 

groups of consumers. The CFPB 

collected 2022 calendar year 

information from entities it supervises 

(the group that would be affected by the 

proposed rule), which reinforced 

patterns of disparity that prior research 

of the CFPB and others established: 240

Overdraft and NSF fees comprised 53 

percent of all fees that the institutions 

charged to consumer checking accounts, 

nearly three quarters of all fees charged 

to accounts with an average balance 

below $500 (lower balance accounts), 

and nearly three quarters of all fees 

charged to accounts where 

accountholders opted to authorize 

overdraft fees on debit card and ATM 

overdraft transactions (opted-in 

accounts). While overdraft-related fees 

averaged approximately $65 per year 

over all accounts, accountholders of 

opted-in accounts and accountholders 

of lower-balance accounts paid over 

$165 and $220, respectively, in total of 

overdraft fees per year on average. 

Therefore, the benefits of any fee 

changes driven by the proposal would 

be predominantly experienced by the 

small fraction of accountholders who 

had either opted-in accounts or lowerbalance accounts because those 

accountholders paid the majority of 

overdraft fees. Indeed, in aggregate, 

across all institutions represented in the 

CFPB’s Supervisory Information 

collection, one-fifth of accounts were 

lower-balance accounts, but these 

accounts paid 68 percent of per-item 

overdraft fees assessed. In fact, at least 

one institution charged over half of peritem overdraft fees to accounts that were 

both lower-balance accounts and optedin accounts, even though only five 

percent of accounts fell into this 

category. Furthermore, accounts that 

paid for overdraft most often (twelve or 

more overdraft fees per year) were 

nearly five times as prevalent among 

opted-in accounts than not-opted-in 

accounts. 

Overdraft use, and therefore the 

potential benefit from reduced fees, is 

also correlated with other consumer 

characteristics. As lower-income 

accountholders pay more fees, and 

minorities pay more fees even after 

controlling for income, these groups are 

more likely to benefit from the proposed 

changes.241

ii. Responses by the Depository 

Institutions Covered by the Proposal 

Consumer gains would likely differ 

from the mechanical effect of lower fees 

on non-covered overdraft as described 

in the section above if some depository 

institutions would tailor their offering to 

the new environment as the proposed 

rule allows. The discussion in this 

subsection starts with the possibility 

that institutions might adjust 

underwriting standards or overdraft 

coverage limits for non-covered 

overdraft credit when the marginal 

profit on each non-covered overdraft 

transaction falls. Then the text turns to 

the decision of whether to waive the 

fees on some overdraft transactions. 

Next is the analysis of decisions about 

whether to instead extend products that 

substitute for non-covered overdraft, 

primarily covered overdraft credit but 

also transfers from linked asset 

accounts. Finally, the subsection 

discusses repricing of financial 

products, like maintenance fees on the 

underlying checking account. 

The Availability of Non-Covered 

Overdraft Credit 

Assuming that very large financial 

institutions comply with the proposal 

by lowering their fees for non-covered 

overdraft credit, these lower fees may 

change very large financial institutions’ 

decisions about whether to extend noncovered overdraft credit for a given 

transaction on a given account. 

Financial institutions generally have 

discretion in setting overdraft 

policies.242 When a financial institution 

decides whether to cover an overdraft 

transaction, it generally trades off the 

revenue from charging a fee against 

expected marginal costs and charge-off 

losses, although decisions about 

extending credit and charging or 

waiving a fee may also take into account 

their impact on the lifetime value of the 

customer as well as its reputation.243

Lower potential fee revenue could 

impact the decision to extend noncovered overdraft credit. In addition, 

very large financial institutions often 

offer services that are substitutes for 

non-covered overdraft credit, including 

covered overdraft credit and the option 

of linking other asset accounts to a 

checking account such that those other 

accounts can, sometimes for a fee, be 

accessed in the event of a shortfall. If 

fees for non-covered overdraft credit 

were limited for very large financial 

institutions, they could have incentives 

to limit access to non-covered overdraft 

credit but encourage consumers to take 

advantage of these substitute services. 

Having said that, firms that use the 

breakeven standard and not the 

benchmark fee could be disincentivized 

from reducing overdraft transactions 

because to do so would necessarily 

reduce the firms’ cost and loss basis for 

the next year’s fee calculation for 

remaining overdraft customers but not 

yield profits over the long run. 

In principle, very large financial 

institutions could respond to the 


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244 Jennifer L. Dlugosz et al.,Who Pays the Price? 

Overdraft Fee Ceilings and the Unbanked (Fed. 

Rsrv. Bank of N.Y., Staff Rep. No. 9073, June 2021), 

https://www.newyorkfed.org/medialibrary/media/ 

research/staff_reports/sr973.pdf (revised July 2023). 

245 Id. at 40 tbl.7. 

246FDIC Tables at 3 tbl.A.2. 

247As discussed in part II above, marketwide 

overdraft revenue (for both banks and credit unions) 

is estimated at approximately $25 billion in 2009, 

and fell to an estimated $12 billion in 2011. 

According to bank call report data, total bank 

deposit service charges fell from $41.7 billion in 

2009 to $33.1 billion in 2011 and remained at a 

similar level in following years. While other factors 

may explain part of the reduction in deposit service 

charges, the large and persistent decrease suggests 

that banks did not make up all of the lost overdraft 

revenue from the 2009 opt-in rule by increasing 

other prices. 

248See, e.g., E. Scott Reckord, At many big banks, 

no more free checking, L.A. Times (Feb. 4, 2011), 

https://www.latimes.com/archives/la-xpm-2011-feb04-la-fi-free-checking-20110204-story.html. 

249Paola Boel & and Peter Zimmerman. 

Unbanked in America: A Review of the Literature. 

Econ. Comment. 2022–07 (Fed. Rsrv. Bank of Clev.), 

May 26, 2002, https://www.clevelandfed.org/ 

publications/economic-commentary/2022/ec202207-unbanked-in-america-a-review-of-theliterature. Note that the increase in the FDIC 

measure may have been impacted by the Financial 

Crisis. 

250See CFPB May 2023 Data Spotlight. 

proposed rule’s changes by 

underwriting non-covered overdraft 

credit more conservatively, by reducing 

credit limits (whether or not disclosed 

to the accountholder) for 

accountholders with higher expected 

credit losses, or even by eliminating 

access to non-covered overdraft credit 

for some consumers who currently 

qualify for such credit, though as 

discussed later, the firms may offer 

other products instead. Limited access 

to non-covered overdraft could be 

beneficial to consumers with access to 

cheaper credit options they mistakenly 

forgo or to consumers who would have 

preferred that a transaction was 

declined rather than incurring an 

overdraft fee. Consumers often overdraw 

their account when they have liquid 

funds or available cheaper credit. In 

these cases, consumers might benefit 

from using those options instead of 

overdraft credit. However, there are 

scenarios, even when there are other 

credit options available and overdraft is 

more expensive, that the prompt 

completion of the transaction would be 

more valuable to consumers than the fee 

charged. 

The CFPB is aware of an empirical 

study finding that relaxing restrictions 

to overdraft fees may result in increased 

access to deposit accounts with 

overdraft coverage.244 The work, not yet 

peer-reviewed, analyzed an episode in 

2001 in which national banks’ sudden 

exemption from State fee caps permitted 

some banks to increase their fees for 

non-covered overdraft. The study 

attempts to identify the effect of the 

regulatory change by comparing 

national banks (which became exempt 

from State fee restrictions) to State 

banks (which did not), and also 

comparing banks in States that had such 

restrictions to States that did not. 

The authors find that the analyzed 

change to fee caps seems to have led to 

higher overdraft fees at national banks 

in these States, expanded overdraft 

coverage at these banks, and more lowincome households opening deposit 

accounts. In the setting studied, about 

56 percent of consumers in the lowest 

income quartile did not have checking 

accounts before the regulatory change, 

and the authors estimate that this share 

fell by about five percentage points after 

the change. The findings are consistent 

with the regulatory change making it 

more profitable, in those States affected, 

for national banks to provide accounts 

to consumers who maintain low 

balances. The authors do not find 

evidence that the newly banked 

consumers regretted (or at least 

reverted) their choice or that they 

suffered worse financial health. 

As with most modern empirical 

research in economics, the study 

focuses attention on the internal validity 

of the findings, i.e., the measurement of 

the causal effect of the policy change at 

the time and place that it took effect. 

The study design relies on relatively 

strong assumptions to establish 

causation. The study’s methodology 

requires establishing that differential 

trends at national and State institutions 

in affected States would have continued 

to diverge (or converge) at the same 

linear rate in the absence of the rule, 

and establishing this is made more 

difficult by the relatively short five-year 

window that the study uses from its 

data source. 

Even assuming the internal validity of 

the findings, several differences in both 

the economic context and the nature of 

the regulatory change make it unlikely 

that the study’s findings would apply 

directly if the proposed rule were 

finalized. The authors report that for the 

households in their data from 2001, 34 

percent of households did not have a 

checking account,245 whereas the FDIC 

reports that the share of households 

without a checking or savings account 

has fallen steadily over the last decade 

and that in 2021 only 4.5 percent of 

households are unbanked.246 Even if 

new opportunities to earn overdraft 

revenue gave banks meaningful 

incentives to expand the types of 

checking accounts they offered in 2001, 

that does not necessarily mean that 

reductions in overdraft revenue in the 

current market would lead to similar 

reductions in overall bank account 

access. The study authors concluded 

that while their research suggested 

relaxing caps was beneficial to 

consumers without bank accounts in 

2001, they did not reach the conclusion 

that relaxing the caps was beneficial to 

consumers who already had bank 

accounts, which, as noted above, since 

the time studied, has since become an 

even greater proportion of the 

population. Moreover, the proposal 

would not impose limits on all overdraft 

fees but rather would require very large 

financial institutions to comply with 

Regulation Z when offering covered 

overdraft credit. 

A prominent precedent for a U.S. 

policy change affecting overdraft fee 

revenue was the implementation of the 

opt-in rule of Regulation E in August 

2010. The CFPB is not aware of a careful 

empirical study that isolates the effect of 

this change in the market. That said, 

there was a substantial decrease in 

marketwide overdraft revenue following 

the introduction of the opt-in rule and 

a smaller decrease in total service 

charges, which suggests less than fully 

offsetting price responses.247 However, 

isolating the effect of the opt-in rule is 

made more difficult by the fact that the 

implementation of the cap on very large 

financial institutions’ interchange fees 

on debit cards came a mere three 

months later, and the Great Recession 

might also confound the effects of the 

opt-in rule alone. The CFPB’s market 

monitoring activities also indicate that 

some institutions ceased to offer ‘‘free 

checking’’ after the 2010 changes.248

The downward trend in the share of 

American adults without a bank account 

does not seem to have broken around 

the time of these changes in the longrunning series of the Survey of 

Consumer Finances, and the FDIC’s 

Survey of Household Use of Banking 

and Financial Services, which started in 

2009, shows a small increase in the 

unbanked share in 2011 before steady 

declines thereafter.249

According to the CFPB’s market 

monitoring, recent voluntary decreases 

in overdraft revenue at many large 

American depository institutions have 

not coincided with conspicuous 

restrictions of checking offerings or 

increases in other fees, though this 

period corresponded to increases in net 

interest revenue on deposits resulting 

from a changing interest rate 

environment.250

In some cases, in response to the 

proposed rule, the above referenced 

more conservative underwriting may 

lead lenders to reject transactions they 


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251 Various pieces of evidence have bolstered the 

view that overdraft is a mistake for many. Stango 

and Zinman document that surveying consumers 

about overdraft makes them use it less, strongly 

suggesting that they overuse the service when they 

are paying less attention. See Victor Stango & 

Jonathan Zinman, Limited and Varying Consumer 

Attention: Evidence from Shocks to the Salience of 

Bank Overdraft Fees, 27 Rev. Fin. Stud. 990–1030 

(2014), https://academic.oup.com/rfs/article/27/4/ 

990/1603971). Alan et al. ran an experiment in 

Turkey, where overdraft fee discounts lowered use 

while messages about availability raised it, 

suggesting that consumers are overdrawing their 

account without regard to the actual fees and even 

a discounted price is too high for them when it 

draws their attention. Sule Alan et al., 

Unshrouding: Evidence from Bank Overdrafts in 

Turkey, 73 J. Fin. 481–522 (2018), https://

onlinelibrary.wiley.com/doi/full/10.1111/ 

jofi.12593). Grubb modeled the direct and indirect 

consequences of just-in time ‘‘bill-shock alerts’’ 

(e.g., for debit card transactions) on consumers and 

finds that the overdraft market is ripe for such 

reminders, as people differ in how much attention 

they pay to their available balance. Michael D. 

Grubb, Consumer Inattention and Bill-Shock 

Regulation, 82 Rev. Econ. Stud. 219–57 (2015), 

https://academic.oup.com/restud/article/82/1/219/ 

1543467). Grubb et al. indeed report on field 

experiments in the UK where timely text message 

alerts saved consumers 11 to 27 percent of overdraft 

fees, which also shows that many had available 

funds elsewhere. Michael D. Grubb et al., Sending 

Out an SOS: Automatic Enrollment Experiments for 

Overdraft Alerts (forthcoming in the Journal of 

Finance), https://sites.google.com/bc.edu/michaelgrubb/research. Heidhues and Koszegi use overdraft 

as their prime example of markets where providers 

exploit the mistakes of some consumers. Paul 

Heidhues & Botond Koszegi, Naı ̈vete ́-Based 

Discrimination, 132 The Q. J. of Econ. 1019, 1019– 

1054 (May 2017), https://academic.oup.com/qje/ 

article/132/2/1019/2724551?searchresult=1. 

Gathergood and Olafsson find in granular 

administrative data some overdraft behaviors 

impossible to rationalize. John Gathergood & Arna 

Olafsson, The Co-holding Puzzle: New Evidence 

from Transaction-Level Data (Oct 10, 2023), https:// 

ssrn.com/abstract=3607560. 

252Manisha Padi, Contractual Inequality, 120 

Mich. L. Rev. 825, at 834–40 (2021). 

would not have rejected under the 

baseline where consumers do not have 

other viable options. In such cases, 

some consumers would no longer have 

the option to use non-covered overdraft 

as credit, which means transactions 

would be declined, but also, the 

consumers would not incur its high cost 

and potential risks of account closure. 

Overdraft use can also decrease due to 

financial institution responses that 

cause no consumer harm. With smaller 

profits on each transaction, very large 

financial institutions could have more 

of an incentive to educate their 

depositors and help them avoid negative 

balance episodes.251 Financial 

institutions would also have less of an 

incentive to inflate the number of 

overdraft transactions with transaction 

posting orders designed to increase the 

number of overdraft fees. 

Waiver Policies 

Currently, a substantial fraction of 

overdraft fees is waived by financial 

institutions, either because regulation 

does not allow fees on transactions that 

are payed per contractual obligations 

(such as debit APSN transactions 

without opt-in), pursuant to an 

automatic policy like a daily maximum, 

or at the discretion of a customer service 

representative or manager, often called 

a discretionary waiver or a reversal after 

the fact. Lower fee amounts would 

change institutions’ incentives related to 

whether to waive the fee by policy or 

discretion, which is a subset of overall 

waivers. For this decision, the 

depository institution trades off the net 

revenue from charging the fee against 

the expected value of a marginally better 

relationship with the customer. Lower 

fee amounts would affect both parts of 

this tradeoff. Lower potential fee 

revenue would mean that depository 

institutions would have less to lose by 

waiving a fee, while they also imply that 

there is less at stake for the consumer, 

likely making fee waivers less important 

to maintaining good customer 

relationships. 

As discussed in part V(D)(2)(v), the $3 

benchmark fee, in particular, would not 

have covered charge-off losses for the 

institution with the lowest credit losses 

in the CFPB’s data for 2022 had they 

applied their current waiver policy so 

that they charged $3 only in instances 

where they actually charged their 

current higher fee in 2022. This suggests 

that institutions that currently waive or 

reverse fees might reconsider their 

policies if a benchmark fee did not 

allow them to recoup their costs and 

losses on their non-covered overdraft 

credit product, if product-specific profit 

targets were more important in practice 

than the marginal incentives for 

individual waivers. Were an institution 

to adopt the breakeven standard, it 

would charge higher fees but could 

waive the fee on fewer or more 

instances than in the baseline without 

any impact on its profit. Institutions 

adopting the breakeven standard would 

have an incentive to tailor their waiver 

policies to foster customer goodwill and 

retention according to the 

accountholder’s lifetime value to the 

institution. 

A decrease in the chance of a waiver 

would shift the consumer experience 

from higher overdraft fees (as much as 

$35) that might be waived 

discretionarily, to lower overdraft fees 

(as low as $3) that are more predictable. 

On net, the CFPB expects that shift to 

lower costs and create more 

predictability for consumers. In 

addition, the discretionary nature of 

some fee waivers can lead to the 

potential for disparate treatment of 

customers, as some customers may be 

more likely to get an overdraft fee 

waived than others. This disparate 

treatment would amount to what has 

been called ‘‘contractual inequality.’’ 252

A substantial decrease in discretionary 

waivers is likely to move towards more 

equality of waiver rates across 

underprivileged and more privileged 

groups. 

Expanding Covered Overdraft Credit or 

Other Substitutes for Non-Covered 

Overdraft 

Financial institutions may choose to 

offer covered overdraft credit in 

addition to or instead of non-covered 

overdraft credit. Whether consumers 

would choose to apply for and use 

covered overdraft products, and 

whether very large financial institutions 

would find it profitable to offer them, 

depends on a number of factors, and 

available evidence does not permit the 

CFPB to confidently predict whether or 

how such products would develop. In 

particular, it would depend on the price 

that the market will bear for these 

products in new segments, as well as 

the cost and time required to develop 

reliable underwriting and consumer 

acquisition systems to support such 

products. 

Lines of credit on any such new 

covered overdraft product might be 

smaller than on existing covered 

overdraft lines of credit, which 

generally focus on premium market 

segments. 

If underwriting these covered 

overdraft credit lines on the new 

accounts would require extensions of 

existing systems or new installations at 

many institutions, transitioning a new 

customer base to covered overdraft 

credit would take time and 

experimentation, even at institutions 

with experience underwriting credit 

cards or extant overdraft lines of credit. 

The frequent overdrafter population 

might be profitable to underwrite with 

small lines, but few financial 

institutions would have experience 

underwriting such small lines of credit 

for this population (either for a credit 

card or extant overdraft lines of credit). 

The effective date proposed would leave 

time for very large financial institutions 

to experiment before implementation, 

which could facilitate development of 

new covered overdraft credit offerings. 

If frictions slowed the transition of 

consumers from non-covered to covered 

overdraft credit, fewer consumers would 

receive the new coverage at institutions 

that try to move some of their overdraft 

customers into a covered product. 

Past experience offers little guidance 

on the extent to which very large 


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253 Interest rates are similar on arranged and 

unarranged overdrafts in the United Kingdom, 

following recent regulation setting a comparable 

pricing structure on both. See Danail Vasilev et al., 

Fin. Conduct Auth., Evaluation Paper 23/1: An 

evaluation of our 2019 overdrafts intervention (Apr. 

2023), https://www.fca.org.uk/publications/ 

corporate-documents/evaluation-paper-23-1- 

evaluation-our-2019-overdrafts-intervention (FCA 

2023)). This could suggest similar pricing for 

covered overdraft credit as for current non-covered 

overdraft credit, even if it becomes better disclosed 

and the credit limits are clearer than current 

shadow lines. However, the same British reform 

also resulted in expanding arranged overdraft lines 

and smaller unarranged lines in addition, which 

suggests that covered overdraft credit could also 

become competitive or even prevalent in the United 

States. 

254Regulatory constraints may also affect the fees 

charged for covered overdraft credit. For example, 

for open-end covered overdraft credit accounts 

accessible with a hybrid debit credit card, the feeharvesting provisions in § 1026.52(a) would limit 

some fees that very large financial institutions can 

charge in the first year of a new account to 25 

percent of the approved credit line. Section 

1026.52(a) does not, however, limit charges that are 

assessed as periodic rates. 

255Pew Charitable Tr., Overdraft Does Not Meet 

the Needs of Most Consumers (Dec. 2017), https:// 

www.pewtrusts.org/-/media/assets/2017/12/cb_

overdraft_does_not_meet_the_needs_of_most_

consumers.pdf (3 of 4 consumers do not understand 

they have a right to not opt in to overdraft on debit 

card transactions). 

256Based on the CFPB’s review of publicly 

available information in June 2023, of the 20 banks 

reporting the most in overdraft/NSF revenue in 

2021, 18 were not charging a transfer fee to transfer 

funds from a savings account to cover an overdraft, 

financial institutions would attempt to 

transition current non-covered overdraft 

transactions into a covered product. As 

depository institutions generally target 

existing covered overdraft credit as a 

premium product at customers with low 

charge-off risks and high expected 

lifetime value to the institution, inertia 

might imply that customers who are 

more likely to struggle to recover from 

a negative balance episode continue to 

access a non-covered overdraft product 

subject to the new breakeven or 

benchmark limits, keeping non-covered 

overdraft fees higher under the 

breakeven standard than otherwise.253

When overdraft credit is covered 

overdraft credit, institutions may find it 

harder to quickly adjust credit limits, an 

advantage to institutions of non-covered 

overdraft credit that is more important 

for institutions when extending 

overdraft credit that is less likely to be 

repaid. 

The disclosure provisions of 

Regulation Z might result in more 

competitive pressure on the pricing of 

covered overdraft credit products than 

currently exists for non-covered 

overdraft credit. An increase in 

competitive pressure could mean that 

new covered overdraft products would 

be less expensive than existing noncovered overdraft products for the same 

consumers and coverage.254

Consumers would also stand to gain 

from the availability of covered 

overdraft credit because meeting 

periodic minimum payments, which are 

generally lower than the full balance, 

would allow them to revolve their 

overdraft debt and cover more extended 

needs for liquidity. They could also pay 

less in per-transaction fees if their asset 

account, not depleted by full repayment 

of prior overdrafts, would cover more 

transactions while the credit account 

carries a balance. Periodic repayment 

saves consumers some per-transaction 

finance charges at the cost of somewhat 

higher periodic charges resulting from a 

credit balance remaining outstanding for 

longer. Furthermore, consumers who 

cannot repay the overdrawn amount 

within 60 days, when non-covered 

overdraft credit balances are typically 

charged off, might benefit from 

revolving their covered overdraft credit 

balance for a longer period of time. 

Consumers who go delinquent on new 

covered overdraft credit accounts would 

have their credit negatively impacted if 

the delinquency is reported to consumer 

reporting agencies, though not 

necessarily with more dire 

consequences than with a negative 

report to checking account reporting 

companies after involuntary account 

closure due to a negative balance on the 

original asset account that would have 

resulted from similar behavior with 

non-covered overdraft credit in the 

absence of the proposed rule. 

When consumers at very large 

financial institutions are offered covered 

overdraft credit, that covered overdraft 

credit would not be subject to the 

Regulation E opt-in requirement for 

non-covered debit card overdraft. 

However, it would be subject to 

Regulation Z’s application and 

solicitation requirements and 

limitations on the issuance of credit 

cards if it can be accessed by a hybrid 

debit-credit card. Consumers would not 

separately consent, the same way as 

Regulation E currently requires, to 

overdraft charges on one-time debit card 

and ATM transactions. A very large 

financial institution would be 

permitted, instead, to simply give the 

consumer the choice to apply for 

covered overdraft credit that would be 

extended to cover any overdrawing 

transaction (whether it be check, ACH, 

debit card, ATM, or any other form). 

Once the account is established, the 

CFPB expects those covered overdraft 

accounts to be presented to consumers 

as a credit account on phone 

applications, accounts on websites, and 

periodic statements, which would call 

attention to the fact that covered 

overdraft credit is a credit product. 

Consumers who choose to have 

covered overdraft credit that is 

accessible by a hybrid debit-credit card 

might be better off than those who are 

opted into non-covered overdraft credit 

on one-time debit card and ATM 

transactions today if the same amount of 

credit for the same transactions costs 

less, as discussed above, or because of 

the other protections included in this 

proposed rule. Where a financial 

institution only offers covered overdraft 

credit bundled for all transaction types, 

consumers who are not opted in today 

would gain the right to, effectively, 

refrain from opting into overdraft on 

transactions other than one-time debit 

and ATMs. They would lose, however, 

the ability to refrain from opting into 

overdraft for one-time debit and ATMs 

while intentionally keeping overdraft 

for other transactions. It is unclear how 

many consumers would prefer the 

default of Regulation E, particularly 

given evidence that consumer 

understanding of the Reg E opt-in right 

is low.255 Loss of this choice would be 

an issue where the financial institution 

is offering covered overdraft credit and 

does not give consumers a choice on 

which transactions can access the 

covered overdraft. 

If very large financial institutions 

chose to offer closed-end covered 

overdraft credit, such closed-end 

covered overdraft credit would not be 

subject to the substantive protections 

discussed above. Instead, it would be 

subject to the disclosure requirements 

that apply to closed-end credit. The 

CFPB believes it is unlikely that this 

product would be provided. 

With non-covered overdraft credit less 

profitable for financial institutions and 

available to fewer consumers, both 

institutions and consumers would have 

greater incentive to take advantage of 

linked accounts. Institutions might offer 

and promote more of these 

opportunities. Transfer fees on linked 

asset accounts to cover overdrawing 

checking account debits can result in 

costs for consumers but protect them 

from unnecessary borrowing if they 

indeed have liquid assets elsewhere. 

Links to existing credit lines like credit 

cards would not have this benefit but 

give more control to consumers to shop 

for rates and decide on repayment, with 

potentially still lower transfer fees than 

fees on non-covered overdraft credit 

under the proposal. Transfer fees for 

transfers from both savings accounts 

and credit accounts have been less 

common among the largest banks in 

recent years than they were prior.256


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and 16 were not charging a fee to transfer funds 

from a credit account. 

257See CFPB, Chart of Overdraft/NSF metrics for 

Top 20 banks based on overdraft/NSF revenue 

reported (Feb. 2022), https://

files.consumerfinance.gov/f/documents/cfpb_

overdraft-chart_2022-02.pdf. At least one of these 

banks charges overdraft fees that are already less 

than fee benchmarks under consideration in this 

proposed rule. 

258CFPB May 2023 Data Spotlight. 

259See FCA 2023. 

260The FDIC has been reporting national average 

interest rates on checking accounts since 2009, 

separately for non-jumbo and jumbo accounts until 

2021. For much of this history, nominal interest 

rates hit the zero lower bound. For months with 

four-week Treasury yields below one hundred basis 

points, the national average (non-jumbo) checking 

account paid 8.3 basis points less. In other times, 

partly because checking account APYs have not 

risen as fast as short-term nominal interest rates, 

checking accounts paid 251.7 basis points below 

the four-week Treasury bill yield, on average. 

Offsetting Changes to Other Deposit 

Account Prices 

As discussed above, the proposed rule 

would lead to reductions in noncovered overdraft revenue at many 

financial institutions, and it is uncertain 

whether that revenue would be 

replaced, potentially by revenue from 

covered overdraft or other substitute 

products. Overdraft provider responses 

to this lost revenue would affect both 

the sum of consumer gains and their 

distribution across market segments and 

populations. Total consumer gains will 

be lower if very large financial 

institutions make up for lost overdraft 

fee revenue and any potential increase 

in costs by raising revenue by increasing 

other checking account prices or 

decreasing rates paid on deposit 

accounts. Whether financial institutions 

would offset lost overdraft fee revenue 

in this way for some or all deposit 

accounts would depend on a number of 

factors, including overall profitability of 

deposit accounts and the nature of 

competition among financial 

institutions. 

To give an upper bound on how much 

lost revenue might be offset on a peraccount basis, the CFPB estimates the 

mechanically lost revenue per account 

from non-covered overdraft fees without 

any behavioral responses. While full 

offset of the revenue loss is not a likely 

scenario, calculating this upper bound 

provides some quantitative context for 

understanding the limits of potential 

lost revenue and corresponding changes 

that might result. The CFPB does not 

have current information on the number 

of active checking accounts at all very 

large financial institutions but requested 

such information for 2022 from eight 

very large financial institutions in a 

supervisory capacity. For these 

institutions, the overall average 

overdraft fee revenue from any active 

account-month was $3.77. Of course, 

the proposed rule would not eliminate 

all overdraft fee revenue. Were the CFPB 

to finalize with a $3 benchmark (and 

again, assuming for analytical purposes 

full adoption of the benchmark), 

financial institutions would lose 

approximately 90.8 percent in weighted 

average fee revenue (from $32.50 

average fees to the $3 benchmark 

proposal), totalling a revenue loss of 

$3.42 per account per month. An 81.5 

percent drop in average fee revenue 

(assuming a $6 benchmark) would be 

result in $3 of lost revenue per account 

per month. For a $7 benchmark, that 

figure is $2.96. For the $14 benchmark, 

that figure is $2.15. 

The magnitude of these extreme 

upper bounds on lost revenue per 

account reassures the CFPB that any 

potential losses to banking access can 

remain limited. In fact, there are large 

financial institutions for which this 

proposed rule is unlikely to result in 

substantial reductions in revenue.257

Furthermore, this decrease in overdraft 

revenue is likely to be on-par with, if 

not lower than, the voluntary decrease 

in revenue many large financial 

institutions already absorbed between 

2019 and 2022, without apparent 

disruptions to checking and overdraft 

access.258 The proposed fee reductions 

are in some ways similar to new 

regulations of the overdraft market in 

the United Kingdom in 2019, whose 

impacts the Financial Conduct 

Authority evaluated ex-post with a 

careful causal analysis. Their findings 

are generally consistent with the CFPB’s 

expectations about limited disruption to 

checking and credit access and no 

complete offset of lost overdraft 

revenue.259

Offsetting changes in prices, if any, 

would limit the benefits consumers gain 

from the proposal (as well as the 

corresponding costs to covered persons), 

but also redistribute the burden of 

paying for consumer checking services 

in the United States. Those consumers 

who are currently frequent users of 

high-cost non-covered overdraft credit 

would benefit substantially from lower 

fees even if checking account APY or 

maintenance fees adjust, as those 

adjustments are unlikely to be similarly 

concentrated. Consumers who currently 

receive cross-subsidies from frequent (or 

just occasional) overdrafters, but might 

now receive lower net interest or pay 

higher maintenance fees to their 

checking provider, would incur only 

modest losses under the proposal 

relative to the baseline. 

Under the baseline scenario for this 

analysis, very large financial institutions 

generally do not charge nonsufficient 

fund fees for transactions that 

consumers attempt to authorize in close 

to real time, which could include nonrecurring debit card transactions or 

certain person-to-person transactions. 

Consumers with less access to overdraft 

credit due to this proposal would not 

pay fees on these types of transactions 

that they attempted but that were not 

authorized. However, the CFPB 

recognizes that financial institutions 

under the baseline could start to charge 

such fees in the future if they are not 

subject to the penalty fees limitation in 

§ 1026.52(b). Other types of transactions 

can and might continue to trigger NSF 

fees when declined, although, as noted 

earlier, the significant majority of 

supervised entities subject to the 

proposal eliminated such fees during 

2022 and early 2023. 

iii. Responses by Consumers 

A lower price for non-covered 

overdraft credit would lead some 

consumers to use the product more on 

the margin, assuming it remains 

available to them. For those who are 

attentive to the price of the product, 

who are also likely to use the product 

deliberately and experience liquidity 

and convenience benefits outweighing 

the cost, any additional utilization 

would likely provide net benefits. 

Inattentive consumers, for whom 

overdraft has already often been a 

mistake, would continue to be unlikely 

to pay attention to and rationally 

consider the lower cost of overdrawing 

their balance, and would thus be 

unlikely to use overdraft more even at 

a lower price. 

Some consumers might keep a lower 

deposit balance as long as their 

overdraft protection seems sufficient but 

is now cheaper. As consumers with 

checking account balances forgo a net 

interest margin of 250 basis points 260

relative to short-term Treasury bill 

yields, on average, every $500 in 

deposits shifted from a checking 

account to an account with short-term 

Treasury bill yields would earn each 

consumer an additional average $12.50 

over a year. Others might keep higher 

balances in their checking accounts if 

the proposed rule were to reduce their 

access to overdraft credit or if more 

salient use of overdraft credit made 

them try harder to avoid it. The cost-ofcredit disclosures required for covered 

overdraft credit make its use more 

salient for the switchers than noncovered overdraft used to be. Consumers 


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who keep more in their checking 

account may forgo more interest on their 

savings if they would have otherwise 

kept it in higher-yielding accounts. 

Some consumers may also choose 

different depository institutions, as 

account terms change as a result of the 

proposed rule. The ability to do so will 

generally increase consumer benefits 

and reduce consumer costs. For 

example, consumers who frequently 

overdraft at banks that are not very large 

financial institutions could switch to an 

account at a very large financial 

institution if non-covered overdraft 

credit is available there at lower cost. 

Conversely, a consumer at a very large 

financial institution that loses access to 

non-covered overdraft credit as a result 

of the rule could switch their account to 

another institution that is not covered 

by the proposed rule. 

To the extent that marginal consumers 

could expect to pay a predictable and 

lower amount for checking overall, the 

proposal would encourage unbanked or 

underbanked customers to return to the 

banking system and gain access to FDIC 

insurance and the low cost payments 

system banks provide. 

Overdraft use might also change 

because very large financial institutions 

would need to better disclose newly 

covered overdraft credit to consumers, 

which can only help them. For 

consumers who would use overdraft 

more because of this, their increased use 

may suggest that they would be 

deliberately taking advantage of a 

product worth its price for them. For 

consumers who would use overdraft 

less after these changes, better 

information might correct prior 

misunderstandings and prevent further 

mistakes. 

Better disclosure would also help 

consumers compare the costs of 

different forms of credit (or other 

options to delay or forgo transactions), 

which provides direct benefits to those 

who are able to make more informed 

choices, and also provides indirect 

benefits to other potential users as more 

intensive comparison shopping would 

bring down prices among competitors. 

Consumers currently not opting into 

one-time debit card transaction coverage 

by their non-covered overdraft service 

under Regulation E may be more likely 

to opt into such coverage under lower 

prices. To the extent these consumers 

pay particular attention to the fee and 

how it might affect them, they are less 

likely to regret when they use noncovered overdraft credit than others and 

are thus more likely to benefit from the 

proposed rule. 

iv. Responses by Financial Institutions 

Not Covered by the Proposal 

The proposal would only apply to 

very large financial institutions, and if 

finalized, would not lead to any new 

compliance costs for financial 

institutions not covered by the proposal. 

The CFPB recognizes that a bank or 

credit union’s demand for deposits 

(including demand and time deposits) 

derives from a multitude of factors, 

including, but not limited to, meeting 

expected loan demand and liquidity 

needs. In addition, when consumers 

select a deposit product, they rely on 

many factors unrelated to the overdraft 

pricing, including ATM and branch 

availability, interest rate, and expected 

customer service. 

As the proposal outlines, many large 

financial institutions have already 

substantially reduced overdraft fees. 

During this time, there was no major 

shift in the total share of deposits from 

small financial institutions to very large 

financial institutions. 

The CFPB acknowledges that is 

difficult to predict with certainty as to 

how very large financial institutions 

would evolve their business models 

over time. Of course, as with any change 

in business strategies by market 

participants with substantial market 

shares, this may ultimately lead to 

evolving industry dynamics with 

uncertain benefits and costs. 

2. Potential Benefits and Costs to 

Covered Persons 

This proposed rulemaking would 

affect the consumer business of certain 

depository institutions with more than 

$10 billion in assets. At the end of 

calendar year 2022, used for some 

tabulations here, this list included 176 

depository institutions. 

For covered persons, costs and 

benefits mostly mirror the existence and 

extent of each respective pecuniary 

benefit or cost to their customers, as 

detailed above, net of offsetting changes. 

By the very nature of this relationship, 

the CFPB has considered the various 

causes, mediating channels and 

modulating responses affecting costs 

and benefits to covered persons as 

carefully as for consumers, and much of 

the discussion of the factors and 

mechanisms affecting potential 

consumer pecuniary benefits and costs 

in the previous section also applies to 

the potential costs and benefits, 

respectively, of the proposed rule for 

covered persons. 

In particular, the proposed rule would 

reduce the revenue of very large 

financial institutions from non-covered 

overdraft credit, and these institutions 

may be able to offset this lost revenue 

in various ways, including expanding 

their offerings of covered overdraft or 

other services that substitute for noncovered overdraft credit. The extent to 

which depository institutions will be 

able to pass the price changes of 

checking accounts under the proposed 

rule onto input prices depends on the 

pricing pressures on capital, labor, and 

intermediary goods, and services that 

very large financial institutions pay for. 

Due to their complexity, the CFPB has 

not modeled them in detail. 

The operating cost of offering covered 

overdraft may be higher than the cost of 

providing similar non-covered overdraft 

credit. This arises from the costs of 

complying with Regulations Z and E, 

and potentially other laws. The covered 

persons might bear these costs if market 

forces do not let them pass some of 

them on to the consumer. 

Very large financial institutions 

already have to provide disclosures per 

Regulations DD and E for non-covered 

overdraft credit. If they chose to 

continue offering non-covered overdraft 

credit, they would need to update these 

systems to make sure they accurately 

disclose and charge the new lower fees. 

If they decided to offer covered 

overdraft credit instead to any customer, 

then the disclosures would follow 

Regulation Z. The one-time cost of 

setting up a new covered overdraft 

program or transitioning consumers to 

existing covered overdraft programs 

could be substantial. The compulsory 

use prohibition would impose an 

administrative burden on the institution 

to offer another form of payment to the 

covered overdraft credit customer, as 

well as the operating cost of collecting 

the payment. 

As discussed in the previous section, 

mechanical application of the 

benchmark fee amount to existing noncovered overdraft could reduce revenue 

of very large financial institutions by 

$3.5 billion to $5.6 billion, depending 

on the benchmark fee amount. This 

revenue impact on covered persons is 

limited by the proposal’s design, which 

allows depository institutions to collect 

their costs and losses in overdraft fees. 

Part V.C.3.ii details why the CFPB 

believes that the benchmark fee number 

would allow some very large financial 

institutions to cover their costs and 

losses. Where the benchmark fee 

number would not allow this, fees set 

based on the breakeven standard would 

allow institutions to recover their costs 

and losses over time. This mechanism 

ensures that even entities that would see 

less revenue due to this proposal need 

not take losses on overdraft credit, 

unless they charge lower fees than the 


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proposal would allow. And financial 

institutions whose per-transaction 

traceable costs and losses are lower than 

the benchmark fee could charge that fee 

and thereby make a profit on overdraft. 

The CFPB finds it plausible that a 

different revenue model for checking in 

the U.S. that may result from the 

proposed rule will have broader 

implications on counterparties, 

competitors, or new entrants, or 

elsewhere in the economy. Such 

considerations would be too speculative 

for this impact analysis. 

E. Potential Benefits and Costs to 

Consumers and Covered Persons of 

Further Provisions of the Proposed Rule 

The CFPB is also proposing to apply 

the Regulation E compulsory-use 

prohibition to covered overdraft credit 

provided by a very large financial 

institution. The CFPB is not proposing 

to amend the Regulation Z prohibition 

against offset, nor is the CFPB proposing 

to amend the Regulation Z provision 

permitting periodic deductions. The 

proposal’s approach to these provisions 

would affect the costs and benefits for 

consumers and covered persons of 

consumers potentially switching from 

non-covered overdraft to covered 

overdraft. Consumers who have access 

to covered overdraft credit but 

consciously avoid pre-authorized EFTs 

to repay covered overdraft credit are 

likely to benefit from the compulsory 

use prohibition, which would give them 

additional control over their finances, 

though they might be overoptimistic 

about their future repayment discipline, 

and mistakenly turn down automatic 

payments, to their detriment. 

Consumers who forget to repay can 

incur additional costs, including late 

fees, default interest rates or negative 

credit reporting after a period of 

delinquency. Some consumers might 

not be able to switch to covered 

overdraft credit if their depository 

institution was on the margin of offering 

it and they deem the consumer too 

prone to delinquency without a preauthorized EFT for repayment. It is less 

likely that existing users of covered 

overdraft credit would be impacted for 

the same reason, as they are typically 

premium customers not on the margin 

of profitability. 

Covered persons should not incur 

substantial cost from establishing 

repayment options in addition to a 

preauthorized EFTs. They can feasibly 

establish processes for consumers to 

have the repayment option of 

authorizing individual EFTs. Covered 

overdraft credit accounts that are not 

accessible via a hybrid debit-credit card 

would not be subject to the no-offset 

provision of Regulation Z. 

Consumers with covered overdraft 

who do not repay their balance with 

frequent preauthorized EFTs pay either 

more interest from debt held longer or 

the hassle cost of making unscheduled 

repayments more often. 

On covered overdraft credit accounts 

accessible via a debit card (a hybrid 

debit-credit card), financial institutions 

cannot automatically offset the credit 

balance against a positive balance on the 

associated asset account after a deposit. 

Therefore, consumers would be able to 

pay new debit transactions from the 

asset account before they repay the 

credit account. As discussed above, this 

flexibility in when to repay debt will 

generally give consumers better 

opportunities to manage their finances, 

although in practice the extent of any 

benefit to consumers from being able to 

delay repayment depends on finance 

charges for the credit and whether 

delaying repayment out of the asset 

account allows them to avoid higher 

additional credit charges for new 

transactions. 

Consumers making purchases by 

using hybrid debit-credit cards that 

access covered overdraft credit would 

also benefit from the proposed rule’s 

effect on dispute resolution for such 

purchases. The CFPB expects the 

burden on covered persons from this 

occasional service to be minimal. 

The CFPB is also proposing to require 

very large financial institutions that 

provide covered overdraft credit to do 

so through a credit account that is 

separate from the associated asset 

account. These provisions would clarify 

that a very large financial institution 

must treat existing deposit accounts 

with overdraft credit that is currently 

non-covered overdraft credit, but that 

the institution chooses to provide as 

above breakeven covered overdraft 

credit subsequent to the rule, as a new 

credit account for purposes of 

Regulation Z. Consumers with hybrid 

debit-credit cards able to access a 

covered overdraft credit account, and 

the very large financial institutions that 

provide these accounts, would then be 

subject to the CARD Act protections in 

subpart G of Regulation Z. 

Section 1026.51 would require card 

issuers to consider consumers’ ability to 

make the required minimum periodic 

payments under the terms of the 

account. This could generally reduce 

the amount of credit available to some 

consumers, and some consumers may 

benefit from this requirement if it makes 

it less likely that they are burdened with 

covered overdraft debt for which they 

are unlikely to be able to make required 

minimum periodic payments. Because 

the safe harbor requires lenders to 

estimate whether consumers can repay 

the minimum payment and all fees 

assuming full use of the credit line, this 

could result in firms setting more 

concrete and less fluid credit limits, 

could result in lower credit limits, and 

firms might institute minimum payment 

formulas that do not require full 

payment of overdrafted amounts every 

month. 

Section 1026.52(a) would limit fees 

charged in the first year a covered 

overdraft credit account is open to 25 

percent of the account’s credit limit. 

(Section 1026.52(a) does not restrict 

charges attributable to periodic interest 

rates; see comment 1026.52(a)(2)–1.) 

This could benefit consumers with 

hybrid debit-credit cards able to access 

a covered overdraft credit account in the 

first year the account is open. Any 

reduction in fees paid by consumers as 

a result of 1026.52(a) would result in a 

corresponding cost to covered persons 

from decreased fee revenue. Developing 

and implementing pricing strategies for 

covered overdraft products that comply 

with these requirements could impose 

costs on the covered persons providing 

these products, though the CFPB does 

not expect these costs to impose a 

substantial direct burden. 

Penalty fees, like declined transaction 

fees, for violating the terms of the 

covered overdraft credit account would 

be subject to limitations under 

§ 1026.52(b), providing further benefits 

to consumers who would have paid 

such fees. For example, § 1026.52(b) 

would restrict NSF fees from being 

charged on ACH transactions on 

accounts that have covered overdraft 

credit that is accessible by a hybrid 

debit-credit card. Consumers that would 

have been charged penalty fees, 

including NSF fees on debit card or 

ACH transactions, would benefit by not 

being charged these fees. Similarly, 

financial institutions that would have 

received NSF fee revenue from these 

transactions would see a decrease in 

revenue. Yet, the CFPB understands that 

NSF fees are currently rarely charged on 

debit card transactions and, as 

discussed above, most of the largest 

banks have already eliminated all NSF 

fees. This suggests that the benefits to 

consumers and costs to covered persons 

from this restriction are likely to be 

limited. 

Very large financial institutions 

would be required to provide credit 

account opening disclosures and 

comply with other requirements of 

credit account opening in connection 

with tying covered overdraft credit to 

deposit accounts that already exist. 


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261Cox et al. (2022) identified the unbanked in 

the universe of tax records as those not listing an 

account for rebates or payment over a ten-year 

period, focusing on the 50–59 age group in 2019 

(Cox et al., Financial Inclusion Across the United 

States, available for download at https://

papers.ssrn.com/sol3/papers.cfm?abstract_

id=3934498 (last revised Apr. 24, 2023)). The 

Census links ZCTAs to an urban area (or none). 

262See Jesse Bricker & Geng Li, FRS, Finance and 

Economics Discussion Series, 2023–048, Your 

Friends Your Credit: Social Capital Measures 

Derived From Social Media and the Credit Market 

(2023), https://www.federalreserve.gov/econres/ 

feds/files/2023048pap.pdf. 

263See U.S. Small Bus. Admin., Table of size 

standards, https://www.sba.gov/document/supporttable-size-standards (last updated Oct. 25, 2023). 

Applying new credit account opening 

requirements in connection with 

deposit accounts of consumers who 

already have existing non-covered 

overdraft credit that the institution 

chooses to replace with covered 

overdraft credit under the proposal will 

impose some costs on the depository 

institution. 

Under the proposed rule, above 

breakeven overdraft credit would no 

longer qualify as ‘‘incidental credit’’ 

under § 1002.3 and thus would be 

newly subject to certain requirements 

under Regulation B, including with 

respect to providing notice and recordkeeping. These obligations would have 

costs to covered persons. 

The proposed changes, including 

proposed changes to the definition of 

finance charge, may affect other legal 

requirements under various Federal and 

State laws, including the Military 

Lending Act, usury limits, capital 

requirements, and interchange fees. The 

CFPB acknowledges that some or all of 

these legal requirements might also 

affect charges for non-covered and 

covered overdraft credit indirectly. 

However, the CFPB has not attempted to 

quantify the effects of such changes 

because it is not responsible for 

interpreting those laws and regulations 

and therefore cannot provide the 

detailed predictions about their effects 

that would be required for 

quantification; moreover, the CFPB does 

not predict the extent to which very 

large financial institutions will choose 

to offer covered overdraft credit that is 

subject to those rules. The CFPB seeks 

comment on the extent to which these 

considerations should affect its analysis. 

F. Potential Specific Impacts of the 

Proposed Rule on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets, as 

Described in CFPA Section 1026 

As this proposed rule applies only to 

financial institutions with more than 

$10 billion in total assets, the CFPB 

expects no specific impact on small 

entities directly. Subsection VIII.D.1.iv 

above discusses how the CFPB 

understands the proposed rule’s indirect 

impact on these entities. 

G. Potential Specific Impacts of the 

Proposed Rule on Consumer Access to 

Credit and on Consumers in Rural Areas 

As discussed above, the proposed rule 

would likely lead to an increase in 

overdraft credit regulated by TILA and 

Regulation Z, and for remaining noncovered overdraft credit, a decrease in 

the fee. 

To the extent that consumers in rural 

areas bank with institutions other than 

very large financial institutions, the 

impact of the proposed rule on these 

areas will be limited. 

The CFPB has limited insight into 

overdraft practices in rural areas 

specifically. It is not aware of reasons to 

suggest more adverse or particular 

impacts in rural areas. 

The CFPB has tabulated the share of 

the unbanked in lowest fifth of the 

income distribution in ZIP codes that 

the Census classified as urban, rural, or 

with a fraction rural.261 With this 

precise measurement, both fully urban 

or fully rural areas see 74 percent of 

those with lowest incomes with a bank 

account, with slight variations in the 

ratio for the mixed ZIP codes in 

between. This makes the CFPB expect 

that urban and rural areas have similar 

exposure to overdraft fees, and would 

likely experience similar impacts from 

the proposed rule. 

The CFPB has also tabulated the 

average credit score in each ZIP code, in 

the latest year available in a public 

dataset released by researchers at the 

Federal Reserve Board.262 Fully rural 

ZIP codes have higher credit scores 

(719.6 on average) than fully urban ZIP 

codes (713.7), though with even higher 

averages scores in mostly urban areas 

and the lowest averages for fairly rural 

areas. This again suggests that on 

average, rural areas would have as much 

access to newly underwritten covered 

overdraft credit as the rest of the United 

States. 

IX. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act (RFA) 

generally requires an agency to conduct 

an initial regulatory flexibility analysis 

(IRFA) and a final regulatory flexibility 

analysis of any rule subject to noticeand-comment rulemaking requirements 

unless the agency certifies that the rule 

will not have a significant economic 

impact on a substantial number of small 

entities (SISNOSE). The CFPB is also 

subject to specific additional procedures 

under the RFA involving convening a 

panel to consult with small business 

representatives before proposing a rule 

for which an IRFA is required. An IRFA 

is not required for this proposal because 

the proposal, if adopted, would not have 

a SISNOSE. 

Small institutions, for the purposes of 

the Small Business Regulatory 

Enforcement Fairness Act (SBREFA) of 

1996, are defined by the Small Business 

Administration. Effective March 17, 

2023, financial institutions with less 

than $850 million in total assets are 

determined to be small.263

As this proposed rule only applies to 

financial institutions with more than 

$10 billion in total assets, it affects no 

small entities. 

Accordingly, the Director hereby 

certifies that this proposal, if adopted, 

would not have a significant economic 

impact on a substantial number of small 

entities. Thus, neither an IRFA nor a 

small business review panel is required 

for this proposal. The CFPB requests 

comment on the analysis above. 

X. Paperwork Reduction Act 

Under the Paperwork Reduction Act 

of 1995 (PRA), Federal agencies are 

generally required to seek the Office of 

Management and Budget’s (OMB’s) 

approval for information collection 

requirements prior to implementation. 

Under the PRA, the CFPB may not 

conduct or sponsor and, 

notwithstanding any other provision of 

law, a person is not required to respond 

to an information collection unless the 

information collection displays a valid 

control number assigned by OMB. 

The proposed rule amends 12 CFR 

1005 (Regulation E), which implements 

the Electronic Funds Transfer Act, 

which is assigned OMB control number 

3170–0014, which expires 5/31/2025, as 

well as 12 CFR 1026 (Regulation Z), 

which implements the Truth in Lending 

Act and is assigned OMB Control 

number 3170–0015, which expires 05/ 

31/2025. However, this proposed rule 

may, in addition to the information 

collection requirements of Regulation Z, 

affect the information collection 

requirements contained in 12 CFR part 

1002 (Regulation B), which implements 

ECOA, which is assigned OMB Control 

number 3170–0013 which expires 08/ 

31/2026. A full description of those 

changes and the estimated burdens 

thereof can be found in the Supporting 

Statements for each affected regulation 

that have been filed with OMB in 

connection with this proposed rule and 

are available as part of its public docket. 

The CFPB has a continuing interest in 

the public’s opinions regarding this 

determination. At any time, comments 

regarding this determination may be 


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sent to: The Consumer Financial 

Protection Bureau (Attention: PRA 

Office), 1700 G Street NW, Washington, 

DC 20552, or by email to CFPB_Public_

PRA@cfpb.gov. 

List of Subjects 

12 CFR Part 1005 

Banks, Banking, Consumer protection, 

Credit unions, Electronic fund transfers, 

National banks, Reporting and 

recordkeeping requirements, Savings 

associations. 

12 CFR Part 1026 

Advertising, Banks, Banking, 

Consumer protection, Credit, Credit 

unions, Mortgages, National banks, 

Reporting and recordkeeping 

requirements, Savings associations, 

Truth-in-lending. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the CFPB proposes to amend 

Regulation E, 12 CFR part 1005, and 

Regulation Z, 12 CFR part 1026, as set 

forth below: 

PART 1005—ELECTRONIC FUND 

TRANSFER ACT (REGULATION E) 

■ 1. The authority citation for part 1005 

continues to read as follows: 

Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 

1693b. Subpart B is also issued under 12 

U.S.C. 5601 and 15 U.S.C. 1693o–1. 

Subpart A—General 

■ 2. Section 1005.10 is amended by 

revising paragraph (e)(1) to read as 

follows: 

§ 1005.10 Preauthorized transfers. 

* * * * * 

(e) Compulsory use—(1) Credit. No 

financial institution or other person may 

condition an extension of credit to a 

consumer on the consumer’s repayment 

by preauthorized electronic fund 

transfers, except for credit extended 

under an overdraft credit plan or 

extended to maintain a specified 

minimum balance in the consumer’s 

account. This exception does not apply 

to a covered separate credit feature 

accessible by a hybrid prepaid-credit 

card as defined in Regulation Z, 12 CFR 

1026.61. This exception also does not 

apply to covered overdraft credit 

extended by very large financial 

institutions as those terms are defined 

in Regulation Z, 12 CFR 1026.62. 

* * * * * 

■ 3. In Supplement I to Part 1005— 

Official Interpretations: 

■ a. Under Section 1005.10— 

Preauthorized Transfers, 10(e)(1) Credit 

is revised. 

■ b. Under Section 1005.17— 

Requirements for Overdraft Services, 

17(a) Definition is revised. 

The revisions read as follows: 

Supplement I to Part 1005—Official 

Interpretations 

* * * * * 

Section 1005.10—Preauthorized 

Transfers 

* * * * * 

10(e) Compulsory Use 

10(e)(1) Credit 

1. General rule for loan payments. 

Creditors may not require repayment of 

loans by electronic means on a 

preauthorized, recurring basis. 

2. Overdraft credit plans not 

accessible by hybrid prepaid-credit 

cards and covered overdraft credit 

extended by very large financial 

institutions. 

i. Section 1005.10(e)(1) provides an 

exception from the general rule for an 

overdraft credit plan other than for a 

covered separate credit feature 

accessible by a hybrid prepaid-credit 

card as defined in Regulation Z, 12 CFR 

1026.61 and for covered overdraft credit 

extended by very large financial 

institutions as those terms are defined 

in Regulation Z, 12 CFR 1026.62. A 

financial institution may therefore 

require the automatic repayment of an 

overdraft credit plan, other than a 

covered separate credit feature 

accessible by a hybrid prepaid-credit 

card or covered overdraft credit 

extended by very large financial 

institutions, even if the overdraft 

extension is charged to an open-end 

account that may be accessed by the 

consumer in ways other than by 

overdrafts. 

ii. Credit extended through a negative 

balance on the asset feature of a prepaid 

account that meets the conditions of 

Regulation Z, 12 CFR 1026.61(a)(4), is 

considered credit extended pursuant to 

an overdraft credit plan for purposes of 

§ 1005.10(e)(1). Thus, the exception for 

overdraft credit plans in § 1005.10(e)(1) 

applies to this credit. 

3. Applicability to covered separate 

credit features accessible by hybrid 

prepaid-credit cards. 

i. Under § 1005.10(e)(1), creditors may 

not require by electronic means on a 

preauthorized, recurring basis 

repayment of credit extended under a 

covered separate credit feature 

accessible by a hybrid prepaid-credit 

card as defined in Regulation Z, 12 CFR 

1026.61. The prohibition in 

§ 1005.10(e)(1) applies to any credit 

extended under such a credit feature, 

including preauthorized checks. See 

Regulation Z, 12 CFR 1026.61, and 

comment 61(a)(1)–3. 

ii. Under Regulation Z, 12 CFR 

1026.12(d)(1), a card issuer may not take 

any action, either before or after 

termination of credit card privileges, to 

offset a cardholder’s indebtedness 

arising from a consumer credit 

transaction under the relevant credit 

card plan against funds of the 

cardholder held on deposit with the 

card issuer. Under Regulation Z, 12 CFR 

1026.12(d)(3), with respect to covered 

separate credit features accessible by 

hybrid prepaid-credit cards as defined 

in 12 CFR 1026.61, a card issuer 

generally is not prohibited from 

periodically deducting all or part of the 

cardholder’s credit card debt from a 

deposit account (such as a prepaid 

account) held with the card issuer under 

a plan that is authorized in writing by 

the cardholder, so long as the card 

issuer does not make such deductions to 

the plan more frequently than once per 

calendar month. A card issuer is 

prohibited under Regulation Z, 12 CFR 

1026.12(d), from automatically 

deducting all or part of the cardholder’s 

credit card debt under a covered 

separate credit feature from a deposit 

account (such as a prepaid account) 

held with the card issuer on a daily or 

weekly basis, or whenever deposits are 

made to the deposit account. Section 

1005.10(e)(1) further restricts the card 

issuer from requiring payment from a 

deposit account (such as a prepaid 

account) of credit card balances of a 

covered separate credit feature 

accessible by a hybrid prepaid-credit 

card by electronic means on a 

preauthorized, recurring basis. 

4. Incentives. A creditor may offer a 

program with a reduced annual 

percentage rate or other cost-related 

incentive for an automatic repayment 

feature, provided the program with the 

automatic payment feature is not the 

only loan program offered by the 

creditor for the type of credit involved. 

Examples include: 

i. Mortgages with graduated payments 

in which a pledged savings account is 

automatically debited during an initial 

period to supplement the monthly 

payments made by the borrower. 

ii. Mortgage plans calling for 

preauthorized biweekly payments that 

are debited electronically to the 

consumer’s account and produce a 

lower total finance charge. 

* * * * * 


ddrumheller on DSK120RN23PROD with PROPOSALS2
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Section 1005.17—Requirements for 

Overdraft Services 

17(a) Definition 

1. Exempt securities- and 

commodities-related lines of credit. The 

definition of ‘‘overdraft service’’ does 

not include the payment of transactions 

in a securities or commodities account 

pursuant to which credit is extended by 

a broker-dealer registered with the 

Securities and Exchange Commission or 

the Commodity Futures Trading 

Commission. 

2. Covered overdraft credit. Under 

§ 1005.17(a)(1), a line of credit subject to 

Regulation Z (12 CFR 1026) is not an 

overdraft service. Covered overdraft 

credit as that term is defined in 12 CFR 

1026.62, is a line of credit subject to 

Regulation Z and is therefore not an 

overdraft service. Covered overdraft 

credit includes above breakeven 

overdraft credit extended by a very large 

financial institution as those terms are 

defined in 12 CFR 1026.62. Above 

breakeven overdraft credit extended by 

a very large financial institution is 

therefore not an overdraft service under 

§ 1005.17(a). 

* * * * * 

PART 1026—TRUTH IN LENDING 

(REGULATION Z) 

■ 4. The authority citation for part 1026 

continues to read as follows: 

Authority: 12 U.S.C. 2601, 2603–2605, 

2607, 2609, 2617, 3353, 5511, 5512, 5532, 

5581; 15 U.S.C. 1601 et seq. 

Subpart A—General 

■ 5. Section 1026.2 is amended by 

revising paragraph (a)(15) to read as 

follows: 

§ 1026.2 Definitions and rules of 

construction. 

(a) * * * 

(15)(i) Credit card means any card, 

plate, or other single credit device that 

may be used from time to time to obtain 

credit. The term credit card includes 

both a hybrid prepaid-credit card as 

defined in § 1026.61 and a hybrid debitcredit card as defined in § 1026.62. 

(ii) Credit card account under an 

open-end (not home-secured) consumer 

credit plan means any open-end credit 

account that is accessed by a credit card, 

except: 

(A) A home-equity plan subject to the 

requirements of § 1026.40 that is 

accessed by a credit card; or 

(B) A covered overdraft credit account 

as defined in § 1026.62 offered by a 

creditor other than a very large financial 

institution as defined in § 1026.62 that 

is accessed by a debit card or account 

number. 

(iii) Charge card means a credit card 

on an account for which no periodic 

rate is used to compute a finance charge. 

The term does not include a hybrid 

debit-credit card as defined in 

§ 1026.62. 

(iv) Debit card means any card, plate, 

or other single device that may be used 

from time to time to access an asset 

account other than a prepaid account as 

defined in § 1026.61. The term debit 

card does not include a prepaid card as 

defined in § 1026.61. 

* * * * * 

■ 6. Section 1026.4 is amended by 

revising paragraph (b)(2), adding 

paragraph (b)(12), and revising 

paragraph (c)(3) to read as follows: 

§ 1026.4 Finance charge. 

* * * * * 

(b) * * * 

(2) Service, transaction, activity, and 

carrying charges, including any charge 

imposed on a checking or other 

transaction account (except a prepaid 

account as defined in § 1026.61 or a 

covered asset account as that term is 

defined in § 1026.62) to the extent that 

the charge exceeds the charge for a 

similar account without a credit feature. 

* * * * * 

(12) With regard to a covered asset 

account as that term is defined in 

§ 1026.62(b)(2): 

(i) Any service, transaction, activity, 

or carrying charge imposed on the 

separate credit account required by 

§ 1026.62(c); and 

(ii) Any service, transaction, activity, 

or carrying charge imposed on the 

covered asset account to the extent that 

the charge exceeds a comparable charge 

imposed on a checking or other 

transaction account that does not have 

overdraft credit. 

(iii) For purposes of paragraph 

(b)(12)(ii) of this section, the following 

charges imposed on a checking or other 

transaction account without covered 

overdraft credit are not comparable to 

charges imposed on a covered asset 

account. Thus, to determine pursuant to 

paragraph (b)(12)(ii) of this section the 

amount of a charge on a covered asset 

account that is a finance charge, the 

following fees and charges on a 

checking or other transaction account 

that does not have covered overdraft 

credit may not be subtracted from the 

amount of the charge on the covered 

asset account. 

(A) A charge for authorizing or paying 

a transaction that overdraws the 

checking or other transaction account. 

(B) A charge for declining to authorize 

or pay a transaction. 

(C) A charge for returning a 

transaction unpaid. 

(D) A charge for transferring funds 

into the checking or other transaction 

account from any credit account. 

(E) A charge for transferring funds 

into the checking or other transaction 

account from any other asset account. 

* * * * * 

(c) * * * 

(3) Charges imposed by a financial 

institution for paying items that 

overdraw an account, unless the 

payment of such items and the 

imposition of the charge were 

previously agreed upon in writing. This 

paragraph (c)(3) does not apply to credit 

offered in connection with a prepaid 

account as defined in § 1026.61. This 

paragraph (c)(3) also does not apply to 

above breakeven overdraft credit as 

defined in § 1026.62. 

* * * * * 

Subpart G—Special Rules Applicable 

to Credit Card Accounts and Open-End 

Credit Offered to College Students 

* * * * * 

■ 7. Section 1026.60 is amended by 

revising paragraph (a)(5) to read as 

follows: 

§ 1026.60 Credit and charge card 

applications and solicitations. 

(a) * * * 

(5) Exceptions. This section does not 

apply to: 

(i) Home-equity plans accessible by a 

credit or charge card that are subject to 

the requirements of § 1026.40; 

(ii) Covered overdraft credit as 

defined in § 1026.62 tied to asset 

accounts accessed by check-guarantee 

cards or by debit cards other than 

hybrid debit-credit cards as defined in 

§ 1026.62; 

(iii) Lines of credit accessed by checkguarantee cards or by debit cards, other 

than covered overdraft credit accessed 

by hybrid debit-credit cards, that can be 

used only at automated teller machines; 

(iv) Lines of credit accessed solely by 

account numbers except for a covered 

separate credit feature solely accessible 

by an account number that is a hybrid 

prepaid-credit card as defined in 

§ 1026.61 or covered overdraft credit 

accessible by an account number that is 

a hybrid debit-credit card; 

(v) Additions of a credit or charge 

card to an existing open-end plan; 

(vi) General purpose applications 

unless the application, or material 

accompanying it, indicates that it can be 

used to open a credit or charge card 

account; or 

(vii) Consumer-initiated requests for 

applications. 

* * * * * 


ddrumheller on DSK120RN23PROD with PROPOSALS2
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■ 8. Section 1026.62 is added to read as 

follows: 

§ 1026.62 Overdraft Credit. 

(a) In general—(1) Overdraft credit is 

subject to this section and this part as 

specified below. 

(2) Overdraft credit is any consumer 

credit extended by a financial 

institution to pay a transaction from a 

checking or other transaction account 

(other than a prepaid account as defined 

in § 1026.61) held at the financial 

institution when the consumer has 

insufficient or unavailable funds in that 

account. The term overdraft credit 

includes, but is not limited to, any such 

consumer credit extended through a 

transfer from a credit card account or 

overdraft line of credit. The term does 

not include credit exempt from this part 

pursuant to § 1026.3. 

(b) Definitions. For purposes of this 

section and this part, the following 

definitions apply: 

(1) Above Breakeven Overdraft Credit 

means overdraft credit extended by a 

very large financial institution to pay a 

transaction on which, as an incident to 

or a condition of the overdraft credit, 

the very large financial institution 

imposes a charge or combination of 

charges exceeding the average of its 

costs and charge-off losses for providing 

non-covered overdraft credit as 

described in § 1026.62(d). 

(2) Covered Asset Account means a 

checking or other transaction account 

(other than a prepaid account as defined 

in § 1026.61) provided by a very large 

financial institution that is tied to 

overdraft credit provided by the very 

large financial institution. 

(3) Covered Overdraft Credit means 

overdraft credit that is subject to a 

finance charge or is payable by written 

agreement in more than four 

installments. 

(4) Covered Overdraft Credit Account 

means a credit account through which 

a financial institution extends or can 

extend covered overdraft credit. For 

example, the term includes any line of 

credit, credit card account, credit 

feature, credit plan, or credit subaccount 

through which the financial institution 

extends or can extend covered overdraft 

credit. 

(5) Hybrid Debit-Credit Card means 

any card, plate, or other single credit 

device that a consumer may use from 

time to time to obtain covered overdraft 

credit from a very large financial 

institution. 

(6) Non-Covered Overdraft Credit 

means overdraft credit that is not 

subject to a finance charge and is not 

payable by written agreement in more 

than four installments. 

(7) Overdraft credit has the meaning 

set out in § 1026.62(a)(2). 

(8) Very Large Financial Institution 

means an insured depository institution 

or an insured credit union that has total 

assets of more than $10,000,000,000 and 

any affiliate thereof, as determined 

under 12 U.S.C. 5515(a). 

(c) Structure of covered overdraft 

credit. A very large financial institution 

shall not structure covered overdraft 

credit as a negative balance on a 

checking or other transaction account. 

The very large financial institution shall 

structure covered overdraft credit as a 

separate credit account. The separate 

credit account is a covered overdraft 

credit account. The tied checking or 

other transaction account is a covered 

asset account. 

(d) Charges exceeding the average of 

its costs and charge-off losses for 

providing non-covered overdraft 

credit—(1) General rule. For purposes of 

paragraph 62(b)(1) of this section, any 

charge or combination of charges to pay 

a transaction exceeds the average of a 

very large financial institution’s costs 

and charge-off losses for providing noncovered overdraft credit if the charge or 

combination of charges exceeds the 

greater of: 

(i) The pro rata share of the very large 

financial institution’s total direct costs 

and charge-off losses for providing noncovered overdraft credit in the previous 

year, calculated in accordance with this 

paragraph; or 

(ii) [$3/$6/$7/$14]. 

(2) Cost and loss calculation. When 

calculating the pro rata share of the very 

large financial institution’s total direct 

costs and charge-off losses for providing 

non-covered overdraft credit in the 

previous year, a very large financial 

institution may consider only those 

costs and charge-off losses specifically 

traceable to its provision of non-covered 

overdraft credit in the previous year. 

Such costs and charge-off losses 

include, but are not limited to, its cost 

of funds, its net charge-off losses, and 

operating expenses for its non-covered 

overdraft credit program. Such costs and 

charge-off losses do not include general 

overhead costs or charge-off losses due 

to unauthorized use, EFT errors, billing 

errors, returned deposit items, or 

rescinded provisional credit. 

■ 9. In Supplement I to Part 1026— 

Official Interpretations: 

■ a. Under Section 1026.2—Definitions 

and Rules of Construction: 

■ i. 2(a)(14) Credit is revised. 

■ ii. Paragraph 2(a)(15) is revised. 

■ iii. 2(a)(20) Open-End Credit is 

revised. 

■ b. Under Section 1026.4—Finance 

Charge: 

■ i. Paragraph 4(b)(2) is revised. 

■ ii. Paragraph 4(b)(12) is added. 

■ iii. Paragraph 4(c)(3) is revised. 

■ c. Under Section 1026.12—Special 

Credit Card Provisions: 

■ i. Introductory paragraph 1 is revised. 

■ ii. 12(a)(1) is revised. 

■ iii. 12(a)(2) is revised. 

■ iv. 12(c) is revised. 

■ v. 12(c)(1) General Rule is revised. 

■ d. Under Section 1026.55— 

Limitations on increasing annual 

percentage rates, fees, and charges, 

revise 55(a). 

■ e. Under Section 1026.57—Reporting 

and Marketing Rules for College Student 

Open-End Credit, revise 57(a)(1). 

The revisions and addition read as 

follows: 

Supplement I to Part 1026—Official 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

Section 1026.2—Definitions and Rules 

of Construction 

* * * * * 

2(a)(14) Credit 

1. Exclusions. The following 

situations are not considered credit for 

purposes of the regulation: 

i. Layaway plans, unless the 

consumer is contractually obligated to 

continue making payments. Whether the 

consumer is so obligated is a matter to 

be determined under applicable law. 

The fact that the consumer is not 

entitled to a refund of any amounts paid 

towards the cash price of the 

merchandise does not bring layaways 

within the definition of credit. 

ii. Tax liens, tax assessments, court 

judgments, and court approvals of 

reaffirmation of debts in bankruptcy. 

However, third-party financing of such 

obligations (for example, a bank loan 

obtained to pay off a tax lien) is credit 

for purposes of the regulation. 

iii. Insurance premium plans that 

involve payment in installments with 

each installment representing the 

payment for insurance coverage for a 

certain future period of time, unless the 

consumer is contractually obligated to 

continue making payments. 

iv. Home improvement transactions 

that involve progress payments, if the 

consumer pays, as the work progresses, 

only for work completed and has no 

contractual obligation to continue 

making payments. 

v. Borrowing against the accrued cash 

value of an insurance policy or a 

pension account, if there is no 

independent obligation to repay. 


ddrumheller on DSK120RN23PROD with PROPOSALS2
13900 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

vi. Letters of credit. 

vii. The execution of option contracts. 

However, there may be an extension of 

credit when the option is exercised, if 

there is an agreement at that time to 

defer payment of a debt. 

viii. Investment plans in which the 

party extending capital to the consumer 

risks the loss of the capital advanced. 

This includes, for example, an 

arrangement with a home purchaser in 

which the investor pays a portion of the 

downpayment and of the periodic 

mortgage payments in return for an 

ownership interest in the property, and 

shares in any gain or loss of property 

value. 

ix. Mortgage assistance plans 

administered by a government agency in 

which a portion of the consumer’s 

monthly payment amount is paid by the 

agency. No finance charge is imposed 

on the subsidy amount, and that amount 

is due in a lump-sum payment on a set 

date or upon the occurrence of certain 

events. (If payment is not made when 

due, a new note imposing a finance 

charge may be written, which may then 

be subject to the regulation.) 

2. Payday loans; deferred 

presentment. Credit includes a 

transaction in which a cash advance is 

made to a consumer in exchange for the 

consumer’s personal check, or in 

exchange for the consumer’s 

authorization to debit the consumer’s 

deposit account, and where the parties 

agree either that the check will not be 

cashed or deposited, or that the 

consumer’s deposit account will not be 

debited, until a designated future date. 

This type of transaction is often referred 

to as a ‘‘payday loan’’ or ‘‘payday 

advance’’ or ‘‘deferred-presentment 

loan.’’ A fee charged in connection with 

such a transaction may be a finance 

charge for purposes of § 1026.4, 

regardless of how the fee is 

characterized under state law. Where 

the fee charged constitutes a finance 

charge under § 1026.4 and the person 

advancing funds regularly extends 

consumer credit, that person is a 

creditor and is required to provide 

disclosures consistent with the 

requirements of Regulation Z. (See 

§ 1026.2(a)(17).) 

3. Transactions on the asset features 

of prepaid accounts when there are 

insufficient or unavailable funds. Credit 

includes authorization of a transaction 

on the asset feature of a prepaid account 

as defined in § 1026.61 where the 

consumer has insufficient or 

unavailable funds in the asset feature of 

the prepaid account at the time the 

transaction is authorized to cover the 

amount of the transaction. It also 

includes settlement of a transaction on 

the asset feature of a prepaid account 

where the consumer has insufficient or 

unavailable funds in the asset feature of 

the prepaid account at the time the 

transaction is settled to cover the 

amount of the transaction. This includes 

a transaction where the consumer has 

sufficient or available funds in the asset 

feature of a prepaid account to cover the 

amount of the transaction at the time the 

transaction is authorized but 

insufficient or unavailable funds in the 

asset feature of the prepaid account to 

cover the transaction amount at the time 

the transaction is settled. See § 1026.61 

and related commentary on the 

applicability of this regulation to credit 

that is extended in connection with a 

prepaid account. 

4. Overdraft credit. Funds extended 

by a financial institution to a consumer 

to pay transactions that overdraw a 

checking or other transaction account 

held at the financial institution are 

credit whenever the consumer has a 

contractual obligation to repay the 

funds. 

Paragraph 2(a)(15) 

1. Usable from time to time. A credit 

card must be usable from time to time. 

Since this involves the possibility of 

repeated use of a single device, checks 

and similar instruments that can be 

used only once to obtain a single credit 

extension are not credit cards. 

2. Examples. 

i. Examples of credit cards include: 

A. A card that guarantees checks or 

similar instruments, if the asset account 

is also tied to covered overdraft credit 

or if the instrument directly accesses a 

line of credit. 

B. A debit card (other than a debit 

card that is solely an account number) 

that also accesses a credit account (that 

is, a debit-credit card or hybrid debitcredit card as defined in § 1026.62). See 

comment 2(a)(15)–2.ii.C for guidance on 

whether a debit card that is solely an 

account number is a credit card. 

C. An identification card that permits 

the consumer to defer payment on a 

purchase. 

D. An identification card indicating 

loan approval that is presented to a 

merchant or to a lender, whether or not 

the consumer signs a separate 

promissory note for each credit 

extension. 

E. A card or device that can be 

activated upon receipt to access credit, 

even if the card has a substantive use 

other than credit, such as a purchaseprice discount card. Such a card or 

device is a credit card notwithstanding 

the fact that the recipient must first 

contact the card issuer to access or 

activate the credit feature. 

F. A prepaid card that is a hybrid 

prepaid-credit card as defined in 

§ 1026.61. 

ii. In contrast, credit card does not 

include, for example: 

A. A check-guarantee or debit card 

with no credit feature or agreement. 

B. Any card, key, plate, or other 

device that is used in order to obtain 

petroleum products for business 

purposes from a wholesale distribution 

facility or to gain access to that facility, 

and that is required to be used without 

regard to payment terms. 

C. An account number that accesses a 

credit account, unless the account 

number can access an open-end line of 

credit to purchase goods or services or 

as provided in § 1026.61 with respect to 

a hybrid prepaid-credit card. An 

account number that can access an 

open-end line of credit to purchase 

goods or services includes an account 

number that can access a covered 

overdraft credit account offered by a 

very large financial institution. For 

example, if a creditor provides a 

consumer with an open-end line of 

credit that can be accessed by an 

account number in order to transfer 

funds into another account (such as an 

asset account with the same creditor), 

the account number is not a credit card 

for purposes of § 1026.2(a)(15)(i). 

However, if the account number can 

also access the line of credit to purchase 

goods or services (such as an account 

number that can be used to purchase 

goods or services on the internet), the 

account number is a credit card for 

purposes of § 1026.2(a)(15)(i), regardless 

of whether the creditor treats such 

transactions as purchases, cash 

advances, or some other type of 

transaction. Furthermore, if the line of 

credit can also be accessed by a card 

(such as a debit card), that card is a 

credit card for purposes of 

§ 1026.2(a)(15)(i). 

D. A prepaid card that is not a hybrid 

prepaid-credit card as defined in 

§ 1026.61. 

E. A check-guarantee or debit card 

that can access non-covered overdraft 

credit as defined in § 1026.62 and 

cannot access any other form of credit. 

3. Charge card. 

i. Charge cards are credit cards where 

no periodic rate is used to compute the 

finance charge. The term charge card 

does not include a hybrid debit-credit 

card as defined in § 1026.62. Thus, 

covered overdraft credit extended by a 

very large financial institution through 

a hybrid debit-credit card is not subject 

to special charge card rules. 

A. Under the regulation, a reference to 

credit cards generally includes charge 

cards. In particular, references to credit 


ddrumheller on DSK120RN23PROD with PROPOSALS2
Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13901 

card accounts under an open-end (not 

home-secured) consumer credit plan in 

subparts B and G generally include 

charge cards. 

B. The term charge card is, however, 

distinguished from credit card or credit 

card account under an open-end (not 

home-secured) consumer credit plan in 

§§ 1026.6(b)(2)(xiv), 1026.7(b)(11) 

(except as described in comment 

2(a)(15)–3.ii below), 1026.7(b)(12), 

1026.9(e), 1026.9(f), 1026.28(d), 

1026.52(b)(1)(ii)(C), 1026.60, and 

appendices G–10 through G–13. 

ii. A hybrid prepaid-credit card as 

defined in § 1026.61 is a charge card 

with respect to a covered separate credit 

feature if no periodic rate is used to 

compute the finance charge in 

connection with the covered separate 

credit feature. Unlike other charge card 

accounts, the requirements in 

§ 1026.7(b)(11) apply to a covered 

separate credit feature accessible by a 

hybrid prepaid-credit card that is a 

charge card when that covered separate 

credit feature is a credit card account 

under an open-end (not home-secured) 

consumer credit plan. Thus, under 

§ 1026.5(b)(2)(ii)(A), with respect to a 

covered separate credit feature that is a 

credit card account under an open-end 

(not home-secured) consumer credit 

plan, a card issuer of a hybrid prepaidcredit card that meets the definition of 

a charge card because no periodic rate 

is used to compute a finance charge in 

connection with the covered separate 

credit feature must adopt reasonable 

procedures for the covered separate 

credit feature designed to ensure that 

(1) periodic statements are mailed or 

delivered at least 21 days prior to the 

payment due date disclosed on the 

statement pursuant to 

§ 1026.7(b)(11)(i)(A); and 

(2) the card issuer does not treat as 

late for any purposes a required 

minimum periodic payment received by 

the card issuer within 21 days after 

mailing or delivery of the periodic 

statement disclosing the due date for 

that payment. 

4. Credit card account under an openend (not home-secured) consumer credit 

plan. 

i. An open-end consumer credit 

account is a credit card account under 

an open-end (not home-secured) 

consumer credit plan for purposes of 

§ 1026.2(a)(15)(ii) if: 

A. The account is accessed by a credit 

card, as defined in § 1026.2(a)(15)(i); 

and 

B. The account is not excluded under 

§ 1026.2(a)(15)(ii)(A) or (B). 

ii. The exclusion from credit card 

account under an open-end (not homesecured) consumer credit plan provided 

by § 1026.2(a)(15)(ii)(B) for covered 

overdraft credit offered by a creditor 

that is not a very large financial 

institution does not apply to a covered 

separate credit feature accessible by a 

hybrid prepaid-credit card (including a 

hybrid prepaid-credit card that is solely 

an account number) as defined in 

§ 1026.61. 

* * * * * 

2(a)(20) Open-End Credit 

1. General. This definition describes 

the characteristics of open-end credit 

(for which the applicable disclosure and 

other rules are contained in Subpart B), 

as distinct from closed-end credit. 

Open-end credit is consumer credit that 

is extended under a plan and meets all 

3 criteria set forth in the definition. 

2. Existence of a plan. 

i. The definition requires that there be 

a plan, which connotes a contractual 

arrangement between the creditor and 

the consumer. 

ii. With respect to a covered separate 

credit feature accessible by a hybrid 

prepaid-credit card as defined in 

§ 1026.61, a plan means a program 

where the consumer is obligated 

contractually to repay any credit 

extended by the creditor. For example, 

a plan includes a program under which 

a creditor routinely extends credit from 

a covered separate credit feature offered 

by the prepaid account issuer, its 

affiliate, or its business partner where 

the prepaid card can be used from time 

to time to draw, transfer, or authorize 

the draw or transfer of credit from the 

covered separate credit feature in the 

course of authorizing, settling, or 

otherwise completing transactions 

conducted with the card to obtain goods 

or services, obtain cash, or conduct 

person-to-person transfers, and the 

consumer is obligated contractually to 

repay those credit transactions. Such a 

program constitutes a plan 

notwithstanding that, for example, the 

creditor has not agreed in writing to 

extend credit for those transactions, the 

creditor retains discretion not to extend 

credit for those transactions, or the 

creditor does not extend credit for those 

transactions once the consumer has 

exceeded a certain amount of credit. See 

§ 1026.61(a) and related commentary for 

guidance on the applicability of this 

regulation to credit accessible by hybrid 

prepaid-credit cards. 

iii. Some creditors offer programs 

containing a number of different credit 

features. The consumer has a single 

account with the institution that can be 

accessed repeatedly via a number of 

sub-accounts established for the 

different program features and rate 

structures. Some features of the program 

might be used repeatedly (for example, 

an overdraft line) while others might be 

used infrequently (such as the part of 

the credit line available for secured 

credit). If the program as a whole is 

subject to prescribed terms and 

otherwise meets the definition of openend credit, such a program would be 

considered a single, multifeatured plan. 

iv. With respect to covered overdraft 

credit as defined in § 1026.62, a plan 

means a program where the consumer is 

obligated contractually to repay any 

credit extended by the creditor. Such a 

program constitutes a plan 

notwithstanding that, for example, the 

creditor has not agreed in writing to 

extend credit for those transactions, the 

creditor retains discretion not to extend 

credit for those transactions, or the 

creditor does not extend credit for those 

transactions once the consumer has 

exceeded a certain amount of credit. 

3. Repeated transactions. Under this 

criterion, the creditor must reasonably 

contemplate repeated transactions. This 

means that the credit plan must be 

usable from time to time and the 

creditor must legitimately expect that 

there will be repeat business rather than 

a one-time credit extension. The 

creditor must expect repeated dealings 

with consumers under the credit plan as 

a whole and need not believe a 

consumer will reuse a particular feature 

of the plan. The determination of 

whether a creditor can reasonably 

contemplate repeated transactions 

requires an objective analysis. 

Information that much of the creditor’s 

customer base with accounts under the 

plan make repeated transactions over 

some period of time is relevant to the 

determination, particularly when the 

plan is opened primarily for the 

financing of infrequently purchased 

products or services. A standard based 

on reasonable belief by a creditor 

necessarily includes some margin for 

judgmental error. The fact that 

particular consumers do not return for 

further credit extensions does not 

prevent a plan from having been 

properly characterized as open-end. For 

example, if much of the customer base 

of a clothing store makes repeat 

purchases, the fact that some consumers 

use the plan only once would not affect 

the characterization of the store’s plan 

as open-end credit. The criterion 

regarding repeated transactions is a 

question of fact to be decided in the 

context of the creditor’s type of business 

and the creditor’s relationship with its 

customers. For example, it would be 

more reasonable for a bank or 

depository institution to contemplate 

repeated transactions with a customer 

than for a seller of aluminum siding to 


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make the same assumption about its 

customers. 

4. Finance charge on an outstanding 

balance. 

i. The requirement that a finance 

charge may be computed and imposed 

from time to time on the outstanding 

balance means that there is no specific 

amount financed for the plan for which 

the finance charge, total of payments, 

and payment schedule can be 

calculated. A plan may meet the 

definition of open-end credit even 

though a finance charge is not normally 

imposed, provided the creditor has the 

right, under the plan, to impose a 

finance charge from time to time on the 

outstanding balance. For example, in 

some plans, a finance charge is not 

imposed if the consumer pays all or a 

specified portion of the outstanding 

balance within a given time period. 

Such a plan could meet the finance 

charge criterion, if the creditor has the 

right to impose a finance charge, even 

though the consumer actually pays no 

finance charges during the existence of 

the plan because the consumer takes 

advantage of the option to pay the 

balance (either in full or in installments) 

within the time necessary to avoid 

finance charges. 

ii. With regard to a covered separate 

credit feature and an asset feature on a 

prepaid account that are both accessible 

by a hybrid prepaid-credit card as 

defined in § 1026.61, any service, 

transaction, activity, or carrying charges 

imposed on the covered separate credit 

feature, and any such charges imposed 

on the asset feature of the prepaid 

account to the extent that the amount of 

the charge exceeds comparable charges 

imposed on prepaid accounts in the 

same prepaid account program that do 

not have a covered separate credit 

feature accessible by a hybrid prepaidcredit card, generally is a finance 

charge. See § 1026.4(a) and (b)(11). Such 

charges include a periodic fee to 

participate in the covered separate 

credit feature, regardless of whether this 

fee is imposed on the credit feature or 

on the asset feature of the prepaid 

account. With respect to credit from a 

covered separate credit feature 

accessible by a hybrid prepaid-credit 

card, any service, transaction, activity, 

or carrying charges that are finance 

charges under § 1026.4 constitute 

finance charges imposed from time to 

time on an outstanding unpaid balance 

as described in § 1026.2(a)(20) if there is 

no specific amount financed for the 

credit feature for which the finance 

charge, total of payments, and payment 

schedule can be calculated. 

iii. Regardless of whether the 

financial institution assesses such 

charges on the deposit account itself or 

a separate credit account, any service, 

transaction, activity, or carrying charges 

imposed by a financial institution for 

paying a transaction that overdraws a 

consumer’s deposit account held at the 

financial institution are finance charges 

unless they are excluded from the 

definition of finance charge by 

§ 1026.4(c). See § 1026.4(a), (b)(12), and 

(c). Additionally, such charges would 

constitute finance charges imposed from 

time to time on an outstanding unpaid 

balance, as described in § 1026.2(a)(20), 

if there is no specific amount financed 

for the plan for which the finance 

charge, total of payments, and payment 

schedule can be calculated. 

5. Reusable line. The total amount of 

credit that may be extended during the 

existence of an open-end plan is 

unlimited because available credit is 

generally replenished as earlier 

advances are repaid. A line of credit is 

self-replenishing even though the plan 

itself has a fixed expiration date, as long 

as during the plan’s existence the 

consumer may use the line, repay, and 

reuse the credit. The creditor may 

occasionally or routinely verify credit 

information such as the consumer’s 

continued income and employment 

status or information for security 

purposes but, to meet the definition of 

open-end credit, such verification of 

credit information may not be done as 

a condition of granting a consumer’s 

request for a particular advance under 

the plan. In general, a credit line is selfreplenishing if the consumer can take 

further advances as outstanding 

balances are repaid without being 

required to separately apply for those 

additional advances. A credit card 

account where the plan as a whole 

replenishes meets the self-replenishing 

criterion, notwithstanding the fact that a 

credit card issuer may verify credit 

information from time to time in 

connection with specific transactions. 

This criterion of unlimited credit 

distinguishes open-end credit from a 

series of advances made pursuant to a 

closed-end credit loan commitment. For 

example: 

i. Under a closed-end commitment, 

the creditor might agree to lend a total 

of $10,000 in a series of advances as 

needed by the consumer. When a 

consumer has borrowed the full 

$10,000, no more is advanced under 

that particular agreement, even if there 

has been repayment of a portion of the 

debt. (See § 1026.2(a)(17)(iv) for 

disclosure requirements when a credit 

card is used to obtain the advances.) 

ii. This criterion does not mean that 

the creditor must establish a specific 

credit limit for the line of credit or that 

the line of credit must always be 

replenished to its original amount. The 

creditor may reduce a credit limit or 

refuse to extend new credit in a 

particular case due to changes in the 

creditor’s financial condition or the 

consumer’s creditworthiness. (The rules 

in § 1026.40(f), however, limit the 

ability of a creditor to suspend credit 

advances for home equity plans.) While 

consumers should have a reasonable 

expectation of obtaining credit as long 

as they remain current and within any 

preset credit limits, further extensions 

of credit need not be an absolute right 

in order for the plan to meet the selfreplenishing criterion. 

6. Verifications of collateral value. 

Creditors that otherwise meet the 

requirements of § 1026.2(a)(20) extend 

open-end credit notwithstanding the 

fact that the creditor must verify 

collateral values to comply with 

Federal, state, or other applicable law or 

verifies the value of collateral in 

connection with a particular advance 

under the plan. 

7. Open-end real estate mortgages. 

Some credit plans call for negotiated 

advances under so-called open-end real 

estate mortgages. Each such plan must 

be independently measured against the 

definition of open-end credit, regardless 

of the terminology used in the industry 

to describe the plan. The fact that a 

particular plan is called an open-end 

real estate mortgage, for example, does 

not, by itself, mean that it is open-end 

credit under the regulation. 

* * * * * 

Section 1026.4—Finance Charge 

* * * * * 

Paragraph 4(b)(2) 

1. Checking or transaction account 

charges. A charge imposed in 

connection with a credit feature on a 

checking or transaction account (other 

than a prepaid account as defined in 

§ 1026.61 or a covered asset account as 

that term is defined in § 1026.62) is a 

finance charge under § 1026.4(b)(2) to 

the extent the charge exceeds the charge 

for a similar account without a credit 

feature and the charge is not addressed 

by § 1026.4(b)(12). If a charge for an 

account with a credit feature does not 

exceed the charge for an account 

without a credit feature, the charge is 

not a finance charge under 

§ 1026.4(b)(2). To illustrate: 

i. A $5 service charge is imposed on 

an account with an overdraft line of 

credit (where the institution has agreed 

in writing to pay an overdraft), while a 

$3 service charge is imposed on an 

account without a credit feature; the $2 

difference is a finance charge. (If the 


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difference is not related to account 

activity, however, it may be excludable 

as a participation fee. See the 

commentary to § 1026.4(c)(4).) 

ii. A $5 service charge is imposed for 

each item that results in an overdraft on 

an account with an overdraft line of 

credit, while a $25 service charge is 

imposed for paying or returning each 

item on a similar account without a 

credit feature; the $5 charge is not a 

finance charge. 

2. Prepaid accounts. Fees or charges 

related to credit offered in connection 

with prepaid accounts as defined in 

§ 1026.61 are discussed in 

§§ 1026.4(b)(11) and 1026.61 and related 

commentary. 

* * * * * 

Paragraph 4(c)(3) 

1. Assessing interest on an overdraft 

balance. Except with respect to credit 

offered in connection with a prepaid 

account as defined in § 1026.61, a 

charge on an overdraft balance 

computed by applying a rate of interest 

to the amount of the overdraft is not a 

finance charge, even though the 

consumer agrees to the charge in the 

account agreement, unless the financial 

institution agrees in writing that it will 

pay such items. 

2. Credit accessed in connection with 

a prepaid account. See comment 

4(b)(11)–1 for guidance on when fees 

imposed with regard to credit accessed 

in connection with a prepaid account as 

defined in § 1026.61 are finance charges. 

3. Credit accessed in connection with 

a covered asset account. See 12 CFR 

1026.4(b)(12) for guidance on when fees 

imposed on a covered asset account as 

defined in § 1026.62 are finance charges. 

* * * * * 

Section 1026.12—Special Credit Card 

Provisions 

1. Scope. Sections 1026.12(a) and (b) 

deal with the issuance and liability 

rules for credit cards, whether the card 

is intended for consumer, business, or 

any other purposes. Sections 1026.12(a) 

and (b) are exceptions to the general 

rule that the regulation applies only to 

consumer credit. (See §§ 1026.1 and 

1026.3.) Notwithstanding paragraph (g) 

of this section or Regulation E, 12 CFR 

1005.12(a), paragraphs (a) through (f) of 

this section apply to hybrid debit credit 

cards. 

2. Definition of ‘‘accepted credit 

card’’. For purposes of this section, 

‘‘accepted credit card’’ means any credit 

card that a cardholder has requested or 

applied for and received, or has signed, 

used, or authorized another person to 

use to obtain credit. Any credit card 

issued as a renewal or substitute in 

accordance with § 1026.12(a) becomes 

an accepted credit card when received 

by the cardholder. 

12(a) Issuance of Credit Cards 

Paragraph 12(a)(1) 

1. Explicit request. A request or 

application for a card must be explicit. 

For example, a request for an overdraft 

plan tied to a checking account does not 

constitute an application for a credit 

card with overdraft checking features. 

Therefore, a very large financial 

institution cannot issue a hybrid debitcredit card to a person without first 

receiving an oral or written request or 

application for the hybrid debit-credit 

card. The term hybrid debit-credit card 

has the same meaning as provided in 

§ 1026.62. 

2. Addition of credit features. If the 

consumer has a non-credit card, 

including a prepaid card, the addition of 

a credit feature or plan to the card that 

would make the card into a credit card 

under § 1026.2(a)(15)(i) constitutes 

issuance of a credit card. For example, 

the following constitute issuance of a 

credit card: 

i. Granting overdraft privileges on a 

checking account when the consumer 

already has a check guarantee card; or 

ii. Allowing a prepaid card to access 

a covered separate credit feature that 

would make the card into a hybrid 

prepaid-credit card as defined in 

§ 1026.61 with respect to the covered 

separate credit feature. 

iii. Extending covered overdraft credit 

through a hybrid debit-credit card as 

defined in § 1026.62. 

3. Variance of card from request. The 

request or application need not 

correspond exactly to the card that is 

issued. For example: 

i. The name of the card requested may 

be different when issued. 

ii. The card may have features in 

addition to those reflected in the request 

or application. 

4. Permissible form of request. The 

request or application may be oral (in 

response to a telephone solicitation by 

a card issuer, for example) or written. 

5. Time of issuance. A credit card may 

be issued in response to a request made 

before any cards are ready for issuance 

(for example, if a new program is 

established), even if there is some delay 

in issuance. 

6. Persons to whom cards may be 

issued. A card issuer may issue a credit 

card to the person who requests it, and 

to anyone else for whom that person 

requests a card and who will be an 

authorized user on the requester’s 

account. In other words, cards may be 

sent to consumer A on A’s request, and 

also (on A’s request) to consumers B and 

C, who will be authorized users on A’s 

account. In these circumstances, the 

following rules apply: 

i. The additional cards may be 

imprinted in either A’s name or in the 

names of B and C. 

ii. No liability for unauthorized use 

(by persons other than B and C), not 

even the $50, may be imposed on B or 

C since they are merely users and not 

cardholders as that term is defined in 

§ 1026.2 and used in § 1026.12(b); of 

course, liability of up to $50 for 

unauthorized use of B’s and C’s cards 

may be imposed on A. 

iii. Whether B and C may be held 

liable for their own use, or on the 

account generally, is a matter of state or 

other applicable law. 

7. Issuance of non-credit cards. 

i. Issuance of non-credit cards other 

than prepaid cards. 

A. Under § 1026.12(a)(1), a credit card 

cannot be issued except in response to 

a request or an application. (See 

comment 2(a)(15)–2 for examples of 

cards or devices that are and are not 

credit cards.) A non-credit card other 

than a prepaid card may be sent on an 

unsolicited basis by an issuer that does 

not propose to connect the card to any 

credit plan; a credit feature may be 

added to a previously issued non-credit 

card other than a prepaid card only 

upon the consumer’s specific request. 

B. Examples. A purchase-price 

discount card may be sent on an 

unsolicited basis by an issuer that does 

not propose to connect the card to any 

credit plan. An issuer demonstrates that 

it proposes to connect the card to a 

credit plan by, for example, including 

promotional materials about credit 

features or account agreements and 

disclosures required by § 1026.6. The 

issuer will violate the rule against 

unsolicited issuance if, for example, at 

the time the card is sent a credit plan 

can be accessed by the card or the 

recipient of the unsolicited card has 

been preapproved for credit that the 

recipient can access by contacting the 

issuer and activating the card. 

ii. Issuance of a prepaid card. Section 

1026.12(a)(1) does not apply to the 

issuance of a prepaid card where an 

issuer does not connect the card to any 

covered separate credit feature that 

would make the prepaid card into a 

hybrid prepaid-credit card as defined in 

§ 1026.61 at the time the card is issued 

and only opens a covered separate 

credit feature, or provides an 

application or solicitation to open a 

covered separate credit feature, or 

allows an existing credit feature to 

become a covered separate credit feature 


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accessible by a hybrid prepaid-credit 

card as defined in § 1026.61 in 

compliance with § 1026.61(c). A 

covered separate credit feature may be 

added to a previously issued prepaid 

card only upon the consumer’s 

application or specific request and only 

in compliance with § 1026.61(c). An 

issuer does not connect a prepaid card 

to a covered separate credit feature that 

would make the card into a credit card 

simply by providing the disclosures 

required by Regulation E, 12 CFR 

1005.18(b)(2)(x), (b)(4)(iv), and (vii), 

with the prepaid card. See 

§ 1026.12(a)(2) and related commentary 

for when a hybrid prepaid-credit card as 

defined in § 1026.61 may be issued as a 

replacement or substitution for another 

hybrid prepaid-credit card. See also 

Regulation E, 12 CFR 1005.5 and 

1005.18(a), and related commentary, 

governing issuance of access devices 

under Regulation E. 

8. Unsolicited issuance of PINs. A 

card issuer may issue personal 

identification numbers (PINs) to existing 

credit cardholders without a specific 

request from the cardholders, provided 

the PINs cannot be used alone to obtain 

credit. For example, the PINs may be 

necessary if consumers wish to use their 

existing credit cards at automated teller 

machines or at merchant locations with 

point of sale terminals that require PINs. 

Paragraph 12(a)(2) 

1. Renewal. Renewal generally 

contemplates the regular replacement of 

existing cards because of, for example, 

security reasons or new technology or 

systems. It also includes the re-issuance 

of cards that have been suspended 

temporarily, but does not include the 

opening of a new account after a 

previous account was closed. 

2. Substitution—examples. 

Substitution encompasses the 

replacement of one card with another 

because the underlying account 

relationship has changed in some way— 

such as when the card issuer has: 

i. Changed its name. 

ii. Changed the name of the card. 

iii. Changed the credit or other 

features available on the account. For 

example, the original card could be used 

to make purchases and obtain cash 

advances at teller windows. The 

substitute card might be usable, in 

addition, for obtaining cash advances 

through automated teller machines. (If 

the substitute card constitutes an access 

device, as defined in Regulation E, then 

the Regulation E issuance rules would 

have to be followed.) The substitution of 

one card with another on an unsolicited 

basis is not permissible, however, where 

in conjunction with the substitution an 

additional credit card account is opened 

and the consumer is able to make new 

purchases or advances under both the 

original and the new account with the 

new card. For example, if a retail card 

issuer replaces its credit card with a 

combined retailer/bank card, each of the 

creditors maintains a separate account, 

and both accounts can be accessed for 

new transactions by use of the new 

credit card, the card cannot be provided 

to a consumer without solicitation. 

iv. Substituted a card user’s name on 

the substitute card for the cardholder’s 

name appearing on the original card. 

v. Changed the merchant base, 

provided that the new card is honored 

by at least one of the persons that 

honored the original card. However, 

unless the change in the merchant base 

is the addition of an affiliate of the 

existing merchant base, the substitution 

of a new card for another on an 

unsolicited basis is not permissible 

where the account is inactive. A credit 

card cannot be issued in these 

circumstances without a request or 

application. For purposes of 

§ 1026.12(a), an account is inactive if no 

credit has been extended and if the 

account has no outstanding balance for 

the prior 24 months. (See 

§ 1026.11(b)(2).) 

3. Substitution—successor card 

issuer. Substitution also occurs when a 

successor card issuer replaces the 

original card issuer (for example, when 

a new card issuer purchases the 

accounts of the original issuer and 

issues its own card to replace the 

original one). A permissible substitution 

exists even if the original issuer retains 

the existing receivables and the new 

card issuer acquires the right only to 

future receivables, provided use of the 

original card is cut off when use of the 

new card becomes possible. 

4. Substitution—non-credit-card plan. 

A credit card that replaces a retailer’s 

open-end credit plan not involving a 

credit card is not considered a substitute 

for the retailer’s plan—even if the 

consumer used the retailer’s plan. A 

credit card cannot be issued in these 

circumstances without a request or 

application. 

5. One-for-one rule. An accepted card 

may be replaced by no more than one 

renewal or substitute card. For example, 

the card issuer may not replace a credit 

card permitting purchases and cash 

advances with two cards, one for the 

purchases and another for the cash 

advances. 

6. One-for-one rule—exceptions. The 

regulation does not prohibit the card 

issuer from: 

i. Replacing a single card that is both 

a debit card and a credit card, such as 

a hybrid debit-credit card as defined in 

§ 1026.62, with a credit card and a 

separate debit card with only debit 

functions (or debit functions plus an 

associated capability to extend overdraft 

credit that is not covered overdraft 

credit as defined in § 1026.62), since the 

latter card could be issued on an 

unsolicited basis under Regulation E. 

ii. Replacing a single card that is both 

a prepaid card and a credit card with a 

credit card and a separate prepaid card 

where the latter card is not a hybrid 

prepaid-credit card as defined in 

§ 1026.61. 

iii. Replacing an accepted card with 

more than one renewal or substitute 

card, provided that: 

A. No replacement card accesses any 

account not accessed by the accepted 

card; 

B. For terms and conditions required 

to be disclosed under § 1026.6, all 

replacement cards are issued subject to 

the same terms and conditions, except 

that a creditor may vary terms for which 

no change in terms notice is required 

under § 1026.9(c); and 

C. Under the account’s terms the 

consumer’s total liability for 

unauthorized use with respect to the 

account does not increase. 

7. Methods of terminating replaced 

card. The card issuer need not 

physically retrieve the original card, 

provided the old card is voided in some 

way, for example: 

i. The issuer includes with the new 

card a notification that the existing card 

is no longer valid and should be 

destroyed immediately. 

ii. The original card contained an 

expiration date. 

iii. The card issuer, in order to 

preclude use of the card, reprograms 

computers or issues instructions to 

authorization centers. 

8. Incomplete replacement. If a 

consumer has duplicate credit cards on 

the same account (Card A—one type of 

bank credit card, for example), the card 

issuer may not replace the duplicate 

cards with one Card A and one Card B 

(Card B—another type of bank credit 

card) unless the consumer requests Card 

B. 

9. Multiple entities. Where multiple 

entities share responsibilities with 

respect to a credit card issued by one of 

them, the entity that issued the card 

may replace it on an unsolicited basis, 

if that entity terminates the original card 

by voiding it in some way, as described 

in comment 12(a)(2)–7. The other entity 

or entities may not issue a card on an 

unsolicited basis in these 

circumstances. 

* * * * * 


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12(c) Right of Cardholder To Assert 

Claims or Defenses Against Card Issuer 

1. Relationship to § 1026.13. The 

§ 1026.12(c) credit card ‘‘holder in due 

course’’ provision deals with the 

consumer’s right to assert against the 

card issuer a claim or defense 

concerning property or services 

purchased with a credit card, if the 

merchant has been unwilling to resolve 

the dispute. Even though certain 

merchandise disputes, such as nondelivery of goods, may also constitute 

‘‘billing errors’’ under § 1026.13, that 

section operates independently of 

§ 1026.12(c). The cardholder whose 

asserted billing error involves 

undelivered goods may institute the 

error resolution procedures of § 1026.13; 

but whether or not the cardholder has 

done so, the cardholder may assert 

claims or defenses under § 1026.12(c). 

Conversely, the consumer may pay a 

disputed balance and thus have no 

further right to assert claims and 

defenses, but still may assert a billing 

error if notice of that billing error is 

given in the proper time and manner. 

An assertion that a particular 

transaction resulted from unauthorized 

use of the card could also be both a 

‘‘defense’’ and a billing error. 

2. Claims and defenses assertible. 

Section 1026.12(c) merely preserves the 

consumer’s right to assert against the 

card issuer any claims or defenses that 

can be asserted against the merchant. It 

does not determine what claims or 

defenses are valid as to the merchant; 

this determination must be made under 

state or other applicable law. 

3. Transactions excluded. Section 

1026.12(c) does not apply to the use of 

a check guarantee card or a debit card 

(other than a hybrid debit-credit card) in 

connection with an overdraft credit 

plan, or to a check guarantee card used 

in connection with cash-advance 

checks. 

4. Method of calculating the amount 

of credit outstanding. The amount of the 

claim or defense that the cardholder 

may assert shall not exceed the amount 

of credit outstanding for the disputed 

transaction at the time the cardholder 

first notifies the card issuer or the 

person honoring the credit card of the 

existence of the claim or defense. 

However, when a consumer has asserted 

a claim or defense against a creditor 

pursuant to § 1026.12(c), the creditor 

must apply any payment or other credit 

in a manner that avoids or minimizes 

any reduction in the amount subject to 

that claim or defense. Accordingly, to 

determine the amount of credit 

outstanding for purposes of this section, 

payments and other credits must be 

applied first to amounts other than the 

disputed transaction. 

i. For examples of how to comply 

with §§ 1026.12 and 1026.53 for credit 

card accounts under an open-end (not 

home-secured) consumer credit plan, 

see comment 53–3. 

ii. For other types of credit card 

accounts, creditors may, at their option, 

apply payments consistent with 

§ 1026.53 and comment 53–3. In the 

alternative, payments and other credits 

may be applied to: Late charges in the 

order of entry to the account; then to 

finance charges in the order of entry to 

the account; and then to any debits 

other than the transaction subject to the 

claim or defense in the order of entry to 

the account. In these circumstances, if 

more than one item is included in a 

single extension of credit, credits are to 

be distributed pro rata according to 

prices and applicable taxes. 

5. Prepaid cards. 

i. Section 1026.12(c) applies to 

property or services purchased with the 

hybrid prepaid-credit card that accesses 

a covered separate credit feature as 

defined in § 1026.61. The following 

examples illustrate when a hybrid 

prepaid-credit card is used to purchase 

property or services: 

A. A consumer uses a hybrid prepaidcredit card as defined in § 1026.61 to 

make a purchase to obtain goods or 

services from a merchant and credit is 

drawn directly from a covered separate 

credit feature accessed by the hybrid 

prepaid-credit card without transferring 

funds into the asset feature of the 

prepaid account to cover the amount of 

the purchase. For example, assume that 

the consumer has $10 of funds in the 

asset feature of the prepaid account and 

initiates a transaction with a merchant 

to obtain goods or services with the 

hybrid prepaid-credit card for $25. In 

this case, $10 is debited from the asset 

feature and $15 of credit is drawn 

directly from the covered separate credit 

feature accessed by the hybrid prepaidcredit card without any transfer of funds 

into the asset feature of the prepaid 

account to cover the amount of the 

purchase. In this case, the consumer is 

using credit accessed by the hybrid 

prepaid-credit card to purchase property 

or services where credit is drawn 

directly from the covered separate credit 

feature accessed by the hybrid prepaidcredit card to cover the amount of the 

purchase. 

B. A consumer uses a hybrid prepaidcredit card as defined in § 1026.61 to 

make a purchase to obtain goods or 

services from a merchant and credit is 

transferred from a covered separate 

credit feature accessed by the hybrid 

prepaid-credit card into the asset feature 

of the prepaid account to cover the 

amount of the purchase. For example, 

assume the same facts as above, except 

that the $15 will be transferred from a 

covered separate credit feature to the 

asset feature, and a transaction of $25 is 

debited from the asset feature of the 

prepaid account. In this case, the 

consumer is using credit accessed by the 

hybrid prepaid-credit card to purchase 

property or services because credit is 

transferred to the asset feature of the 

prepaid account to cover the amount of 

a purchase made with the card. This is 

true even though the $15 credit 

transaction is treated as ‘‘nonsale 

credit’’ under § 1026.8(b). See comments 

8(a)–9.ii and 8(b)–1.vi. 

ii. For a transaction at point of sale 

where a hybrid prepaid-credit card is 

used to obtain goods or services from a 

merchant and the transaction is partially 

paid with funds from the asset feature 

of the prepaid account, and partially 

paid with credit from the covered 

separate credit feature, the amount of 

the purchase transaction that is funded 

by credit generally would be subject to 

the requirements of § 1026.12(c). The 

amount of the transaction funded from 

the prepaid account would not be 

subject to the requirements of 

§ 1026.12(c). 

12(c)(1) General Rule 

1. Situations excluded and included. 

The consumer may assert claims or 

defenses only when the goods or 

services are ‘‘purchased with the credit 

card.’’ This would include when the 

goods or services are purchased by a 

consumer using a hybrid prepaid-credit 

card to access a covered separate credit 

feature as defined in § 1026.61 or using 

a hybrid debit-credit card to access a 

covered overdraft credit account as 

defined in § 1026.62. This could include 

mail, the internet or telephone orders, if 

the purchase is charged to the credit 

card account. But it would exclude: 

i. Use of a credit card to obtain a cash 

advance, even if the consumer then uses 

the money to purchase goods or 

services. Such a transaction would not 

involve ‘‘property or services purchased 

with the credit card.’’ 

ii. The purchase of goods or services 

by use of a check accessing an overdraft 

account and a credit card used solely for 

identification of the consumer. (On the 

other hand, if the credit card is used to 

make partial payment for the purchase 

and not merely for identification, the 

right to assert claims or defenses would 

apply to credit extended via the credit 

card, although not to credit extended by 

the overdraft line. If partial payment for 

the purchase is made with a hybrid 

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13906 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

credit card, the right to assert claims or 

defenses would apply to credit accessed 

from a covered separate credit feature or 

covered overdraft credit account, 

respectively.) 

iii. Purchases made by use of a check 

guarantee card in conjunction with a 

cash advance check (or by cash advance 

checks alone). (See comment 12(c)–3.) A 

cash advance check is a check that, 

when written, does not draw on an asset 

account; instead, it is charged entirely to 

an open-end credit account. 

iv. Purchases effected by use of either 

a check guarantee card or a debit card 

(other than a hybrid debit-credit card) 

when used to draw on overdraft credit 

plans. (See comment 12(c)–3.) The debit 

card exemption applies whether the 

card accesses an asset account via point 

of sale terminals, automated teller 

machines, or in any other way, and 

whether the card qualifies as an ‘‘access 

device’’ under Regulation E or is only a 

paper based debit card. If a card serves 

both as an ordinary credit card and also 

as a check guarantee or debit card, a 

transaction will be subject to this rule 

on asserting claims and defenses when 

used as an ordinary credit card 

(including when used as a hybrid debitcredit card to access a covered overdraft 

credit account), but not when used as a 

check guarantee or debit card. For 

purchases effected by use of a hybrid 

debit-credit card where the transaction 

is partially paid with funds from the 

asset account, and partially paid with 

covered overdraft credit, the provisions 

of § 1026.12(c) apply only to the credit 

portion of the purchase transaction. 

* * * * * 

Section 1026.55—Limitations on 

Increasing Annual Percentage Rates, 

Fees, and Charges 

55(a) General Rule 

1. Increase in rate, fee, or charge. 

Section 1026.55(a) prohibits card issuers 

from increasing an annual percentage 

rate or any fee or charge required to be 

disclosed under § 1026.6(b)(2)(ii), 

(b)(2)(iii), or (b)(2)(xii) on a credit card 

account unless specifically permitted by 

one of the exceptions in § 1026.55(b). 

Except as specifically provided in 

§ 1026.55(b), this prohibition applies 

even if the circumstances under which 

an increase will occur are disclosed in 

advance. The following examples 

illustrate the general application of 

§ 1026.55(a) and (b). Additional 

examples illustrating specific aspects of 

the exceptions in § 1026.55(b) are 

provided in the commentary to those 

exceptions. 

i. Account-opening disclosure of nonvariable rate for six months, then 

variable rate. Assume that, at account 

opening on January 1 of year one, a card 

issuer discloses that the annual 

percentage rate for purchases is a nonvariable rate of 15% and will apply for 

six months. The card issuer also 

discloses that, after six months, the 

annual percentage rate for purchases 

will be a variable rate that is currently 

18% and will be adjusted quarterly by 

adding a margin of 8 percentage points 

to a publicly-available index not under 

the card issuer’s control. Furthermore, 

the card issuer discloses that the annual 

percentage rate for cash advances is the 

same variable rate that will apply to 

purchases after six months. Finally, the 

card issuer discloses that, to the extent 

consistent with § 1026.55 and other 

applicable law, a non-variable penalty 

rate of 30% may apply if the consumer 

makes a late payment. The payment due 

date for the account is the twenty-fifth 

day of the month and the required 

minimum periodic payments are 

applied to accrued interest and fees but 

do not reduce the purchase and cash 

advance balances. 

A. Change-in-terms rate increase for 

new transactions after first year. On 

January 15 of year one, the consumer 

uses the account to make a $2,000 

purchase and a $500 cash advance. No 

other transactions are made on the 

account. At the start of each quarter, the 

card issuer may adjust the variable rate 

that applies to the $500 cash advance 

consistent with changes in the index 

(pursuant to § 1026.55(b)(2)). All 

required minimum periodic payments 

are received on or before the payment 

due date until May of year one, when 

the payment due on May 25 is received 

by the creditor on May 28. At this time, 

the card issuer is prohibited by 

§ 1026.55 from increasing the rates that 

apply to the $2,000 purchase, the $500 

cash advance, or future purchases and 

cash advances. Six months after account 

opening (July 1), the card issuer may 

begin to accrue interest on the $2,000 

purchase at the previously-disclosed 

variable rate determined using an 8- 

point margin (pursuant to 

§ 1026.55(b)(1)). Because no other 

increases in rate were disclosed at 

account opening, the card issuer may 

not subsequently increase the variable 

rate that applies to the $2,000 purchase 

and the $500 cash advance (except due 

to increases in the index pursuant to 

§ 1026.55(b)(2)). On November 16, the 

card issuer provides a notice pursuant 

to § 1026.9(c) informing the consumer of 

a new variable rate that will apply on 

January 1 of year two (calculated using 

the same index and an increased margin 

of 12 percentage points). On December 

15, the consumer makes a $100 

purchase. On January 1 of year two, the 

card issuer may increase the margin 

used to determine the variable rate that 

applies to new purchases to 12 

percentage points (pursuant to 

§ 1026.55(b)(3)). However, 

§ 1026.55(b)(3)(ii) does not permit the 

card issuer to apply the variable rate 

determined using the 12-point margin to 

the $2,000 purchase balance. 

Furthermore, although the $100 

purchase occurred more than 14 days 

after provision of the § 1026.9(c) notice, 

§ 1026.55(b)(3)(iii) does not permit the 

card issuer to apply the variable rate 

determined using the 12-point margin to 

that purchase because it occurred 

during the first year after account 

opening. On January 15 of year two, the 

consumer makes a $300 purchase. The 

card issuer may apply the variable rate 

determined using the 12-point margin to 

the $300 purchase. 

B. Account becomes more than 60 

days delinquent during first year. Same 

facts as above except that the required 

minimum periodic payment due on May 

25 of year one is not received by the 

card issuer until July 30 of year one. 

Because the card issuer received the 

required minimum periodic payment 

more than 60 days after the payment 

due date, § 1026.55(b)(4) permits the 

card issuer to increase the annual 

percentage rate applicable to the $2,000 

purchase, the $500 cash advance, and 

future purchases and cash advances. 

However, § 1026.55(b)(4)(i) requires the 

card issuer to first comply with the 

notice requirements in § 1026.9(g). 

Thus, if the card issuer provided a 

§ 1026.9(g) notice on July 25 stating that 

all rates on the account would be 

increased to the 30% penalty rate, the 

card issuer could apply that rate 

beginning on September 8 to all 

balances and to future transactions. 

ii. Account-opening disclosure of nonvariable rate for six months, then 

increased non-variable rate for six 

months, then variable rate; change-interms rate increase for new transactions 

after first year. Assume that, at account 

opening on January 1 of year one, a card 

issuer discloses that the annual 

percentage rate for purchases will 

increase as follows: A non-variable rate 

of 5% for six months; a non-variable 

rate of 10% for an additional six 

months; and thereafter a variable rate 

that is currently 15% and will be 

adjusted monthly by adding a margin of 

5 percentage points to a publiclyavailable index not under the card 

issuer’s control. The payment due date 

for the account is the fifteenth day of the 

month and the required minimum 

periodic payments are applied to 


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Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 13907 

accrued interest and fees but do not 

reduce the purchase balance. On 

January 15 of year one, the consumer 

uses the account to make a $1,500 

purchase. Six months after account 

opening (July 1), the card issuer may 

begin to accrue interest on the $1,500 

purchase at the previously-disclosed 

10% non-variable rate (pursuant to 

§ 1026.55(b)(1)). On September 15, the 

consumer uses the account for a $700 

purchase. On November 16, the card 

issuer provides a notice pursuant to 

§ 1026.9(c) informing the consumer of a 

new variable rate that will apply on 

January 1 of year two (calculated using 

the same index and an increased margin 

of 8 percentage points). One year after 

account opening (January 1 of year two), 

the card issuer may begin accruing 

interest on the $2,200 purchase balance 

at the previously-disclosed variable rate 

determined using a 5-point margin 

(pursuant to § 1026.55(b)(1)). Section 

1026.55 does not permit the card issuer 

to apply the variable rate determined 

using the 8-point margin to the $2,200 

purchase balance. Furthermore, 

§ 1026.55 does not permit the card 

issuer to subsequently increase the 

variable rate determined using the 5- 

point margin that applies to the $2,200 

purchase balance (except due to 

increases in the index pursuant to 

§ 1026.55(b)(2)). The card issuer may, 

however, apply the variable rate 

determined using the 8-point margin to 

purchases made on or after January 1 of 

year two (pursuant to § 1026.55(b)(3)). 

iii. Change-in-terms rate increase for 

new transactions after first year; penalty 

rate increase after first year. Assume 

that, at account opening on January 1 of 

year one, a card issuer discloses that the 

annual percentage rate for purchases is 

a variable rate determined by adding a 

margin of 6 percentage points to a 

publicly-available index outside of the 

card issuer’s control. The card issuer 

also discloses that, to the extent 

consistent with § 1026.55 and other 

applicable law, a non-variable penalty 

rate of 28% may apply if the consumer 

makes a late payment. The due date for 

the account is the fifteenth of the 

month. On May 30 of year two, the 

account has a purchase balance of 

$1,000. On May 31, the card issuer 

provides a notice pursuant to § 1026.9(c) 

informing the consumer of a new 

variable rate that will apply on July 16 

for all purchases made on or after June 

15 (calculated by using the same index 

and an increased margin of 8 percentage 

points). On June 14, the consumer 

makes a $500 purchase. On June 15, the 

consumer makes a $200 purchase. On 

July 1, the card issuer has not received 

the payment due on June 15 and 

provides the consumer with a notice 

pursuant to § 1026.9(g) stating that the 

28% penalty rate will apply as of 

August 15 to all transactions made on or 

after July 16 and that, if the consumer 

becomes more than 60 days late, the 

penalty rate will apply to all balances 

on the account. On July 17, the 

consumer makes a $300 purchase. 

A. Account does not become more 

than 60 days delinquent. The payment 

due on June 15 of year two is received 

on July 2. On July 16, § 1026.55(b)(3)(ii) 

permits the card issuer to apply the 

variable rate determined using the 8- 

point margin disclosed in the 

§ 1026.9(c) notice to the $200 purchase 

made on June 15 but does not permit the 

card issuer to apply this rate to the 

$1,500 purchase balance. On August 15, 

§ 1026.55(b)(3)(ii) permits the card 

issuer to apply the 28% penalty rate 

disclosed at account opening and in the 

§ 1026.9(g) notice to the $300 purchase 

made on July 17 but does not permit the 

card issuer to apply this rate to the 

$1,500 purchase balance (which 

remains at the variable rate determined 

using the 6-point margin) or the $200 

purchase (which remains at the variable 

rate determined using the 8-point 

margin). 

B. Account becomes more than 60 

days delinquent after provision of 

§ 1026.9(g) notice. Same facts as above 

except the payment due on June 15 of 

year two has not been received by 

August 15. Section 1026.55(b)(4) 

permits the card issuer to apply the 28% 

penalty rate to the $1,500 purchase 

balance and the $200 purchase because 

it has not received the June 15 payment 

within 60 days after the due date. 

However, in order to do so, 

§ 1026.55(b)(4)(i) requires the card 

issuer to first provide an additional 

notice pursuant to § 1026.9(g). This 

notice must be sent no earlier than 

August 15, which is the first day the 

account became more than 60 days’ 

delinquent. If the notice is sent on 

August 15, the card issuer may begin 

accruing interest on the $1,500 purchase 

balance and the $200 purchase at the 

28% penalty rate beginning on 

September 29. 

2. Relationship to grace period. 

Nothing in § 1026.55 prohibits a card 

issuer from assessing interest due to the 

loss of a grace period to the extent 

consistent with § 1026.5(b)(2)(ii)(B) and 

§ 1026.54. In addition, a card issuer has 

not reduced an annual percentage rate 

on a credit card account for purposes of 

§ 1026.55 if the card issuer does not 

charge interest on a balance or a portion 

thereof based on a payment received 

prior to the expiration of a grace period. 

For example, if the annual percentage 

rate for purchases on an account is 15% 

but the card issuer does not charge any 

interest on a $500 purchase balance 

because that balance was paid in full 

prior to the expiration of the grace 

period, the card issuer has not reduced 

the 15% purchase rate to 0% for 

purposes of § 1026.55. 

3. Fees in connection with covered 

separate credit features accessible by 

hybrid prepaid-credit cards. With regard 

to a covered separate credit feature and 

an asset feature on a prepaid account 

that are both accessible by a hybrid 

prepaid-credit card as defined in 

§ 1026.61 where the credit feature is a 

credit card account under an open-end 

(not home-secured) consumer credit 

plan, § 1026.55(a) prohibits card issuers 

from increasing an annual percentage 

rate or any fee or charge required to be 

disclosed under § 1026.6(b)(2)(ii), (iii), 

or (xii) on a credit card account unless 

specifically permitted by one of the 

exceptions in § 1026.55(b). This is true 

regardless of whether these fees or 

annual percentage rates are imposed on 

the asset feature of the prepaid account 

or on the credit feature. 

4. Fees imposed on the asset feature 

of a prepaid account that are not 

charges imposed as part of the plan. 

Section 1026.55(a) does not apply to any 

fee or charge imposed on the asset 

feature of the prepaid account that is not 

a charge imposed as part of the plan 

under § 1026.6(b)(3). See 

§ 1026.6(b)(3)(iii)(D) and (E) and related 

commentary regarding fees imposed on 

the asset feature of the prepaid account 

that are not charges imposed as part of 

the plan under § 1026.6(b)(3) with 

respect to covered separate credit 

features accessible by hybrid prepaidcredit cards and non-covered separate 

credit features as those terms are 

defined in § 1026.61. 

5. Fees in connection with covered 

overdraft credit. With regard to covered 

overdraft credit accessible by a hybrid 

debit-credit card, § 1026.55(a) prohibits 

card issuers from increasing an annual 

percentage rate or any fee or charge 

required to be disclosed under 

§ 1026.6(b)(2)(ii), (iii), or (xii) on a credit 

card account unless specifically 

permitted by one of the exceptions in 

§ 1026.55(b). This is true regardless of 

whether these fees or annual percentage 

rates are imposed on the covered asset 

account associated with the covered 

overdraft credit or on the covered 

overdraft credit account. 

* * * * * 


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13908 Federal Register / Vol. 89, No. 37 / Friday, February 23, 2024 / Proposed Rules 

Section 1026.57—Reporting and 

Marketing Rules for College Student 

Open-End Credit 

57(a) Definitions 

57(a)(1) College Student Credit Card 

1. Definition. The definition of college 

student credit card excludes homeequity lines of credit accessed by credit 

cards and covered overdraft credit 

accounts as defined in 1026.62 offered 

by a creditor other than a very large 

financial institution as defined in 

1026.62 that is accessed by a debit card 

or account number. A college student 

credit card includes a college affinity 

card within the meaning of TILA section 

127(r)(1)(A). In addition, a card may fall 

within the scope of the definition 

regardless of the fact that it is not 

intentionally targeted at or marketed to 

college students. For example, an 

agreement between a college and a card 

issuer may provide for marketing of 

credit cards to alumni, faculty, staff, and 

other non-student consumers who have 

a relationship with the college, but also 

contain provisions that contemplate the 

issuance of cards to students. A credit 

card issued to a student at the college 

in connection with such an agreement 

qualifies as a college student credit card. 

The definition of college student credit 

card includes a hybrid prepaid-credit 

card as defined by § 1026.61 that is 

issued to any college student where the 

card can access a covered separate 

credit feature that is a credit card 

account under an open-end (not homesecured) consumer credit plan. The 

definition of college student credit card 

also includes a prepaid account as 

defined in § 1026.61 that is issued to 

any college student where a covered 

separate credit feature that is a credit 

card account under an open-end (not 

home-secured) consumer credit plan 

accessible by a hybrid prepaid-credit 

card as defined by § 1026.61 may be 

added in the future to the prepaid 

account. 

* * * * * 

Rohit Chopra, 

Director, Consumer Financial Protection 

Bureau. 

[FR Doc. 2024–01095 Filed 2–22–24; 8:45 am] 

BILLING CODE 4810–AM–P 


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