106768 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

1When amending commentary, the Office of the 

Federal Register 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. In addition, the CFPB is 

releasing an unofficial, informal redline to assist 

industry and other stakeholders in reviewing the 

changes to the regulatory text and commentary of 

Regulation E and Regulation Z. This redline may be 

found on the CFPB’s website. If any conflicts exist 

between the redline and the text of Regulation E or 

Regulation Z, its commentary, or this 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). 

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.’’ 

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: Final rule; official 

interpretation. 

SUMMARY: The Consumer Financial 

Protection Bureau (CFPB) amends 

Regulations E and Z to update 

regulatory exceptions for overdraft 

credit provided by very large financial 

institutions, thereby ensuring that these 

extensions of overdraft credit adhere to 

consumer protections required of 

similarly situated products, unless the 

overdraft fee is a small amount that only 

recovers estimated costs and losses. The 

rule allows consumers to better 

comparison shop across credit products 

and provides substantive protections 

that apply to other consumer credit. 

DATES: Effective date: October 1, 2025. 

FOR FURTHER INFORMATION CONTACT: 

George Karithanom, Regulatory 

Implementation and Guidance Program 

Analyst, 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. Overview 

A. Summary 

B. Market Background 

II. The Proposal and Other Procedural 

Background 

A. Outreach and Engagement 

B. Summary of the Proposed Rule 

III. Legal Authority 

A. Truth in Lending Act 

B. Electronic Fund Transfer Act 

C. Consumer Financial Protection Act 

IV. Discussion of the Final Rule 

A. Overview of the CFPB’s Approach 

B. Entity Coverage 

C. Transaction and Account Coverage 

D. Changes to Definition of ‘‘Finance 

Charge’’ 

E. Changes to Covered Overdraft Credit 

Offered by Very Large Financial 

Institutions 

V. Effective and Compliance Date 

VI. Other Comments 

A. Possible Alternative or Additional 

Requirements 

B. Usury Limits 

C. Other Comments Regarding Statutory 

Authority 

D. Data Supporting Application of 

Regulation Z to Overdraft 

E. Implications for Other Laws 

VII. CFPA Section 1022(b) Analysis 

A. Overview 

B. Data Limitation and Quantification of 

Benefits, Costs, and Impacts 

C. Baseline for Analysis 

D. Comments Received 

E. Potential Benefits and Costs to 

Consumers and Covered Persons 

F. Potential Benefits and Costs to 

Consumers and Covered Persons of 

Further Provisions of the Proposed Rule 

G. Potential Impacts on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets, as 

Described in CFPA Section 1026 

H. Potential Impacts on Consumer Access 

to Credit and on Consumers in Rural 

Areas 

VIII. Regulatory Flexibility Act Analysis 

IX. Paperwork Reduction Act 

X. Congressional Review Act 

XI. Severability 

I. Overview 

A. Summary 

The CFPB is updating non-statutory 

exceptions in Regulations Z and E that 

have allowed very large financial 

institutions to avoid statutory consumer 

credit protection 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; other consumer credit 

products with similar features, such as 

short term repayment, 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 

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 the negative consequences of a 

bounced check without being charged 

any additional fees beyond an amount 

that did not exceed 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 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106769 

6 12 CFR 1026.4(c)(3). 

7 12 CFR 1026.4(b)(2). 8Public Law 111–24; 123 Stat. 1734 (2009). 

institutions make from low-balance 

accounts). The volume of overdrawing 

transactions and related revenue rose 

drastically over the years, including on 

transactions where the consumer may 

have otherwise 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 per 

overdraft transaction 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 updating 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 will allow 

consumers to better compare certain 

overdraft credit to other types of credit 

and will provide consumers with 

several substantive protections that 

already apply to other consumer credit. 

These amendments apply only to very 

large financial institutions—i.e., insured 

depository institutions and credit 

unions with more than $10 billion in 

assets. The rule does 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 final rule, Regulation Z 

will 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 final rule accomplishes 

this result by updating two regulatory 

exceptions from the statutory definition 

of finance charge. First, the final rule 

updates 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 The rule narrows this 

exception to no longer apply to ‘‘above 

breakeven overdraft credit’’ offered by a 

very large financial institution, which 

generally means that profit-generating 

overdraft fees charged by very large 

financial institutions would no longer 

be excepted from TILA. The final rule 

gives 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 a standard set 

forth in the rule; or (2) relying on a 

benchmark fee of $5. Second, the final 

rule updates a related exception that 

provides that a charge imposed on an 

asset account in connection with an 

overdraft credit feature is not a finance 

charge if the charge does not exceed the 

charge for a similar transaction account 

without a credit feature.7 The updates 

clarify what is and is not a comparable 

charge in light of changes finalized in 

this rule. 

In the proposal, the CFPB presented 

four alternatives for the benchmark fee 

described above—$3, $6, $7, and $14— 

to solicit public comment on what data 

the CFPB should consider when 

calculating the fee. In the final rule, the 

CFPB will apply the same approach 

used to derive the proposed $3 

benchmark fee. However, the final rule 

increases the $3 benchmark fee to $5 to 

account for additional costs noted by 

commenters, such as costs relating to 

overdraft notices, branch servicing, 

collection, core providers/vendors, 

compliance, and technology. As a result 

of this final rule, above breakeven 

overdraft credit that is not currently 

subject to Regulation Z will become 

subject to Regulation Z, including 

provisions in subpart B that govern 

open-end credit (e.g., annual percentage 

rate disclosures, other account opening 

disclosures, periodic statements, and 

advertising rules), on the effective date 

of this rule. For ease of reference, this 

final rule 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 will become 

covered overdraft credit when this final 

rule becomes effective on October 1, 

2025. 

The final rule also requires covered 

overdraft credit offered by very large 

financial institutions to be put in a 

credit account separate from the asset 

account, and it updates exceptions 

relating to credit cards. Among other 

changes, it applies the portions of 

Regulation Z that implement the Credit 

Card Accountability Responsibility and 

Disclosure Act of 2009 (CARD Act) 8 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 will apply to such overdraft credit 

include, but are not limited to, ability to 

pay underwriting requirements, 

limitations on penalty fees including 

certain fees on transactions that are 

declined due to nonsufficient funds, 

and various requirements related to rate 

changes. 

The final rule will also prohibit 

compulsory use of preauthorized 

electronic fund transfers (EFTs) for 

repayment of covered overdraft credit 

provided by very large financial 

institutions. This change will 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 

cannot 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 will have 

the right to repay this overdraft credit 

manually if they prefer. 

The final rule will take effect on 

October 1, 2025. This effective date is 

more than six months after the date the 

rule is published in the Federal 

Register, consistent with 15 U.S.C. 

1604(d). 

B. Market Background 

1. 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 


ddrumheller on DSK120RN23PROD with RULES2
106770 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

9 34 FR 2002 (Feb. 11, 1969). 

10 42 FR 22360, 22362 (May 3, 1977). 

11 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. 

12Under 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. 

13Consumer 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). 

14 Id. 

15Between 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). 

16Trevor 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). 

17CFPB 2013 White Paper at 48–52. 18Common 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. 19The CFPB is aware that some prepaid card 

providers charge NSF fees on one-time purchase 

transactions, based on fees disclosed in the CFPB’s 

publicly-available prepaid account agreement 

database. 

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 1969,9 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.’’ 10 The Board subsequently 

adopted commentary excluding debit 

cards with no credit agreement from 

Regulation Z’s definition of ‘‘credit 

card.’’ 11 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.12

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.13 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; 14 however, since late 2021, 

in the wake of substantial CFPB 

enforcement and supervising attention 

on overdraft fees, a number of financial 

institutions have voluntarily eliminated 

such fees.15 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 final rule 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.16

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 

cannot 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.17 While, as noted 

above, overdraft credit must technically 

be discretionary to be excepted from 

Regulation Z, in practice, financial 

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).18 Financial 

institutions that use static limits 

sometimes 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.19 Financial institutions 

typically have charged the same amount 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106771 

20See 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 returned item 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.’’). 

21See 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’’). 

22See 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). 

23See 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’’). 24Federal 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 Nov. 13, 2024); 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), Responding to 

Reform: Overdraft in 2023 (Oct. 8, 2024), https://

finhealthnetwork.org/research/responding-toreform-overdraft-in-2023/ (FHN Brief 2024) (finding 

almost half (45 percent) of overdrafters reported 

that their most recent overdraft occurred on a 

transaction of $50 or less). 

25Senate Staff Report at 10–11. 

26See 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, FRS) (showing average 

overdraft fee of over $15 in 1993); see also id. at 

95–96, 101–102 (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). 

27 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). 

28CFPB 2013 White Paper at 16–17. 

29CFPB’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 estimated 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. 

30 Id. 

31CFPB’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 

Continued 

for an NSF fee as for a non-covered 

overdraft fee.20 As noted in part I.B.3, 

many financial institutions have 

eliminated NSF fees over the past three 

years. 

2. Evolution and Growth of NonCovered Overdraft 

Non-covered overdraft credit started 

as a courtesy that individuals within 

financial institutions provided when 

they would decide on an ad hoc basis 

to pay particular check transactions into 

overdraft rather than returning those 

checks unpaid.21 This courtesy would 

help consumers avoid NSF fees, 

merchant fees, and other negative 

consequences from bounced checks. 

Over time, non-covered 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.22 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.23 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.24 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 the New 

York metro area found that the median 

fee was $5, while some banks charged 

zero.25 By 1994, concern had risen about 

the increase in the average fee to over 

$15 ($5.77 in 1976 dollars); 26 by 2000, 

the average had surpassed $20 ($6.61 in 

1976 dollars) and continued to increase 

thereafter.27

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 on overdraft fees.28 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 

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.29

3. 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.30 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 

2019.31 With the onset of the pandemic 


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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. 

32CFPB 2021 Data Point at 22–24. 

33See 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. 

34See discussion of methodology at FN 31. 

35Rebecca 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/. 

36 Id. 

37 Id. 

38 Id. 

39CFPB, 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); see also CFPB, Trends in overdraft/nonsufficient fund (NSF) fee revenue and practices 

(Apr. 24, 2024), https://

content.consumerfinance.gov/data-research/ 

research-reports/trends-in-overdraftnon-sufficientfund-nsf-fee-revenue-and-practices/ (CFPB April 

2024 Data Spotlight) (reflecting data and analysis 

published periodically from Dec. 1, 2021 to 

present). 

40See discussion of methodology at FN 31. 

41Estimated using data from 2022 Federal 

Financial Institutions Examination Council (FFIEC) 

Call Reports and methodology discussed at FN 31. 

42CFPB, 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). 

43CFPB Market Monitoring of Publicly Available 

Overdraft Practices, Dec. 2022–July 2023. 

44CFPB 2013 White Paper at 17. 

45 Id. 

46 Id. 

47 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). 

48CFPB 2017 Data Point at 5. 

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.32 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.33

Notwithstanding the trend downward 

during the pandemic, estimated market 

wide overdraft revenue exceeded $9 

billion in 2020 and 2021.34

Beginning in late 2021, a number of 

large banks began announcing and 

implementing changes to their overdraft 

policies.35 Some banks eliminated 

overdraft fees altogether or reduced 

them to $10 or $15 per transaction.36

Some banks made changes to their 

policies by expanding their fee waiver 

policies, including establishing a daily 

limit of one fee per day even if multiple 

overdrawing transactions are paid; 37

establishing de minimis negative 

balance thresholds of $50 or more, 

within which overdrafts do not result in 

a fee; and implementing grace periods 

giving consumers time through the next 

business day to bring their accounts 

positive before a fee is assessed.38

Collectively these changes resulted in a 

sustained reduction in overdraft 

revenues as compared to pre-pandemic 

levels.39 Marketwide overdraft revenue 

in 2022 was an estimated $9.1 billion 

($7.9 billion in 2019 dollars, a 37 

percent drop in real terms).40 Of that, an 

estimated $6.16 billion, or 68 percent, 

was earned by financial institutions 

with above $10 billion in assets.41 At 

the same time, most very large financial 

institutions eliminated NSF fees.42

Although there was some overall 

decline in the charging of overdraft fees, 

a sizeable majority of banks and credit 

unions with over $10 billion in assets 

(i.e., 68 percent) continue to charge 

between $30 and $37 per transaction 

incurring an overdraft fee, and more 

than half charge $35.43 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).44 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.45 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.46 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 IV.D.3, 

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 those 

banks during the period studied. 

4. Consumer Impact of Overdraft Fees 

As cumulative overdraft fee revenue 

for financial institutions increased 

before recent reductions, so did the 

cumulative burden of overdraft fees on 

consumers, particularly more 

financially vulnerable 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.47 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.48

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 


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49CFPB 2013 White Paper at 25. 

50FDIC, 2023 FDIC National Survey of Unbanked 

and Underbanked Households, at 1 (Nov. 2024), 

https://www.fdic.gov/household-survey/2023-fdicnational-survey-unbanked-and-underbankedhouseholds-report (FDIC 2023 Unbanked Report). 

51 Id. at 27 tbl.1.3 (47.4 percent of unbanked 

households previously had a bank account). 

52 Id. at 28 fig.1.7 (47.5 percent of previously 

banked households are not at all interested in 

having a bank account, and 17.8 percent are not 

very interested). 

53FDIC, 2023 FDIC National Survey of Unbanked 

and Underbanked Households—Appendix Tables 

(November 2024), at 13 tbl.A.8, https://

www.fdic.gov/household-survey/2023-fdic-nationalsurvey-unbanked-and-underbanked-householdsappendix-tables (among previously banked 

households, 32.8 percent cited bank account fees 

are too high, 30.6 percent cited bank account fees 

are too unpredictable, and 43.3 percent cited that 

they do not have enough money to meet minimum 

balance requirements). 

54See 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/; see also Press 

Release, CFPB, CFPB Orders Atlantic Union Bank 

to Pay $6.2 Million for Illegal Overdraft Fee 

Harvesting (Dec. 7, 2023), https://

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

cfpb-orders-atlantic-union-bank-to-pay-6-2-millionfor-illegal-overdraft-fee-harvesting/. 

55 Id.; see also 87 FR 66935, 66935–40 (Nov. 7, 

2022). 

56 87 FR 5801 (Feb. 2, 2022). 

57CFPB 2014 Data Point at 21. 

58 Id. at 13. 

59CFPB 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 I.B.5. 

60CFPB, 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). 

61CFPB 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. 

62 Id. 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, Overdraft Trends Amid Historic Policy Shifts 

(June 1, 2023), https://finhealthnetwork.org/ 

research/overdraft-trends-amid-historic-policyshifts/ (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). 

63CFPB 2017 Data Point at 15–16. 

64See FHN 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 FHN Brief 2024 (finding that 

31 percent of Black, 24 percent of Latinx, and 14 

percent of White households reported having 

overdrafted in 2023); 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://

finhealthnetwork.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); see also CFPB, Overdraft and 

Nonsufficient Fund Fees, at 25 (Dec. 2023), https:// 

files.consumerfinance.gov/f/documents/cfpb_

overdraft-nsf-report_2023-12.pdf (finding that Black 

and Hispanic consumers are 69 and 60 percent 

more likely to reside in a household charged at least 

one overdraft or NSF fee in the past year). 

65For example, a 2012 study found that 30 

million checking accounts were involuntarily 

closed from 2001–2005 due to excessive overdrafts, 

with the former accountholders having limited or 

no subsequent access to the formal banking system. 

See Dennis Campbell et al., Bouncing out of the 

banking system: An empirical analysis of 

involuntary bank account closures, 36 J. Banking & 

Fin. 1224 (2012). The CFPB’s supervisory 

experience suggests that overdraft-related 

involuntary closures remain prevalent in today’s 

market. 

lowest share of accounts with frequent 

overdrafts tended to have the lowest 

rates of involuntary closure.49 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 

Federal Deposit Insurance Corporation 

(FDIC) estimates that there were 

approximately 5.6 million unbanked 

households in the U.S. in 2023,50 nearly 

half of which had a bank account in the 

past.51 Of those previously banked 

households, nearly two-thirds have little 

or no interest in having a bank account 

again,52 with high fees, unpredictable 

fees, and not enough funds to meet 

minimum balance requirements among 

the most cited reasons.53

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.54 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, or whether a particular paid 

transaction will be deemed an overdraft 

and assessed an overdraft fee.55

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,56

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 

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.57 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.58

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.59 In 

addition, involuntary account closure 

was about 2.5 times as likely for 

consumers who were opted-in than for 

consumers who were not.60

Consumers whose accounts are 

frequently overdrawn are typically more 

financially insecure than those who do 

not overdraw or who do so 

infrequently.61 Compared to non- or 

infrequent overdrafters, frequent 

overdrafters tend to have lower incomes 

and lower end-of-day balances.62 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.63 Black 

households and Latino households are 

more likely to incur overdraft fees than 

white households.64

Further, evidence suggests that 

millions of accounts with outstanding 

overdrafts are closed every year, and 

those former accountholders may have 

less subsequent access to the formal 

banking system as a result.65


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66OCC, Interpretive Letter No. 914, at 6 (Sept. 

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

int914.pdf. 

67 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). 

68 69 FR 31760, 31761 (June 7, 2004). 

69See 70 FR 9127, 9128–29 (Feb. 24, 2005). 

70 74 FR 5212 (Jan. 28, 2009). 

71FDIC, Final Overdraft Payment Supervisory 

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

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

fil10081.html. 

72 Id. 

73CFPB 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 

Dec. 3, 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). 

74OCC, 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. 

75OCC Bulletin 2023–12. 

76 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. 

77 81 FR 83934, 83935–36 (Nov. 22, 2016). 

78 15 U.S.C. 1602(f). 

79 81 FR 83934, 84168 (Nov. 22, 2016). 

80 Id. at 84160. 

81 Id. 

82 Id. at 84162. 

83Press 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/. 

5. Growing Regulatory Concerns About 

Non-Covered Overdraft Credit 

As financial institutions began to 

evolve the provision of non-covered 

overdraft away from the historical 

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 Office of the 

Comptroller of the Currency (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.’’ 66 In 2002, the 

Board noted that some non-covered 

overdraft credit may not be all that 

different from overdraft lines of credit,67

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.68 In 2005, the 

Federal banking agencies issued joint 

guidance on non-covered 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’’ and ‘‘[w]ere the 

Board to address these issues more 

specifically, it would do so separately 

under its clear [TILA] authority.’’ 69 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’’).70 Following the 

adoption of the Board’s rule, the FDIC 

issued additional supervisory 

guidance,71 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.72

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.73 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.74 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.75

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.76 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.77

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’’ 78 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.’’ 79 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.’’ 80

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.’’ 81 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.82

II. The Proposal and Other Procedural 

Background 

A. Outreach and Engagement 

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.83 This inquiry 

included a request for information on 


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84 77 FR 12031 (Feb. 28, 2012). 

85See CFPB 2013 White Paper at 8; see also CFPB 

2014 Data Point at 6–7. 

86See CFPB 2013 White Paper; CFPB 2014 Data 

Point; CFPB 2017 Data Point. 

87Nicole 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. 

88CFPB 2021 Data Point. 

89CFPB April 2024 Data Spotlight. 

90See 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). 

91CFPB Market Monitoring of Publicly Available 

Overdraft Practices, Dec. 2022–July 2023. 

92See CFPB, Overdraft and NSF Practices at Very 

Large Financial Institutions (Jan. 2024), https://

files.consumerfinance.gov/f/documents/cfpb_

overdraft-nsf-practices-very-large-financialinstitutions_2024-01.pdf (CFPB Overdraft and NSF 

Practices Report). 

93 89 FR 13852 (Feb. 23, 2024). 

94 12 CFR 1026.4(c)(3). 

95 12 CFR 1026.4(b)(2). 

96Public Law 111–24; 123 Stat. 1734 (2009). 

the impacts of overdraft fees on 

consumers,84 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.85 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.86 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.87

In 2021, the CFPB examined financial 

institutions’ reliance on overdraft/NSF 

fees from 2015 to 2019, finding that it 

was persistent.88 Since then, the CFPB 

has continued tracking trends in the 

marketplace 89 and evaluating some 

banks’ key overdraft-related metrics 

through the CFPB’s supervision work.90

From December 2022 to July 2023, the 

CFPB reviewed the publicly available 

overdraft practices of financial 

institutions with assets over $10 

billion.91 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 IV.D 

as well as in a separate report issued in 

January 2024 titled ‘‘Overdraft and NSF 

Practices at Very Large Financial 

Institutions.’’ 92

Consistent with section 1022(b)(2)(B) 

of the CFPA, the CFPB has consulted 

with the appropriate prudential 

regulators and other Federal agencies, 

including regarding consistency with 

any prudential, market, or systemic 

objectives administered by these 

agencies. 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 II.A. 

B. Summary of the Proposed Rule 

On January 17, 2024, the CFPB issued 

a notice of proposed rulemaking 

containing several proposed 

amendments to Regulations Z and E to 

extend consumer credit protections that 

generally apply to other forms of 

consumer credit to certain overdraft 

credit provided by very large financial 

institutions. This notice of proposed 

rulemaking was published in the 

Federal Register on February 23, 

2024.93 The CFPB proposed 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 expected 

that would likely fall on October 1, 

2025. 

As described more fully below, the 

CFPB proposed to amend Regulations Z 

and E, and accompanying commentary 

as they relate to overdraft credit. The 

amendments would have applied 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 proposed to update two 

regulatory exceptions from the 

definition of finance charge so that 

Regulation Z would 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, as follows. First, the 

proposal would have updated 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 94 so 

that the exception would not apply to 

‘‘above breakeven overdraft credit’’ 

offered by a very large financial 

institution. The proposal would have 

given 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 a standard set 

forth in the proposal; or (2) relying on 

a benchmark fee set by the CFPB in the 

proposal. The CFPB asked for comment 

on four potential benchmark fees: $3, 

$6, $7, or $14. Second, the proposal 

would have updated a related exception 

that provides that a charge imposed on 

an asset account in connection with an 

overdraft credit feature is not a finance 

charge if the charge does not exceed the 

charge for a similar transaction account 

without a credit feature.95

As a result of these proposed changes, 

above breakeven overdraft credit that is 

not currently subject to Regulation Z 

would have 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). 

The proposal would also have 

required covered overdraft credit offered 

by very large financial institutions to be 

put in a credit account separate from the 

asset account, and it would have 

updated exceptions relating to credit 

cards. Among other changes, it would 

have applied the portions of Regulation 

Z that implement the Credit Card 

Accountability Responsibility and 

Disclosure Act of 2009 (CARD Act) 96 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 


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97See https://www.regulations.gov/docket/CFPB2024-0002/comments. 

98See CFPB, Policy on Ex Parte Presentations in 

Rulemaking Proceedings, 82 FR 18687 (Apr. 21, 

2017). 

99See https://www.regulations.gov/docket/CFPB2024-0002/. 

100 15 U.S.C. 1604(a). 

101 15 U.S.C. 1601(a). 

102 Id. 

103 Id. 

104Public Law 111–24; sec. 2, 123 Stat. 1734, 

1735 (2009). 

105 15 U.S.C. 1693. 

106 15 U.S.C. 1693k. 

107 15 U.S.C. 1693b(a). 

108 15 U.S.C. 1693b(c). 

109See S. Rept. No. 95–1273, at 26 (1978). 

credit from a very large financial 

institution. Provisions of the CARD Act 

that would have applied to such 

overdraft credit include, but are not 

limited to, ability to pay underwriting 

requirements, limitations on penalty 

fees including certain fees on 

transactions that are declined due to 

nonsufficient funds, and various 

requirements related to rate changes. 

The proposal would also have 

prohibited compulsory use of 

preauthorized electronic fund transfers 

(EFTs) for repayment of covered 

overdraft credit provided by very large 

financial institutions, which would 

have ensured 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. 

Comments 

The CFPB received over 48,000 

comments on the proposal.97 Over 

47,000 of those comments were from 

individual consumers and over 1,000 

were from or about institutions with 

fewer than $10 billion in assets. The 

CFPB also received many comments 

from consumer advocate commenters, 

academic commenters, industry 

commenters, State regulators, State 

Attorneys General, and members of 

Congress. This also includes comments 

received after the comment period 

closed via ex parte submissions and 

meetings.98 All comments, including ex 

parte submissions and summaries of ex 

parte meetings, will be available on the 

public docket for this rulemaking.99

Relevant information received via 

comment letters, as well as ex parte 

submissions, is discussed below in 

subsequent parts of this document, as 

applicable. The CFPB considered all the 

comments it received regarding the 

proposal, made certain modifications, 

and is adopting the final rule as 

described in part IV below. 

III. Legal Authority 

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.100 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.101 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.102 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.103

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.104

For the reasons discussed in this 

notice, the CFPB is amending 

Regulation Z with respect to overdraft 

credit to carry out TILA’s purposes. The 

CFPB is retaining additional 

requirements, adjustments, and 

exceptions as, in the CFPB’s judgment, 

are necessary and proper to carry out 

the purposes of TILA, prevent 

circumvention or evasion thereof, or to 

facilitate compliance. In developing 

these amendments 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.105 Among other things, 

EFTA contains provisions regarding 

compulsory use of EFTs.106

EFTA section 904(a) authorizes the 

CFPB to prescribe regulations to carry 

out the purposes of EFTA.107 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.108

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.’’ 109

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 IV 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 


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110 12 U.S.C. 5512(b)(1). 

111CFPA 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)). 

CFPB’s authority under, as applicable, 

EFTA section 904(a) and (c). 

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.’’ 110

Among other statutes, TILA, EFTA, 

and the CFPA are Federal consumer 

financial laws.111 Accordingly, in 

issuing this rule, 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. 

IV. Discussion of the Final Rule 

A. Overview of the CFPB’s Approach 

As discussed above, the CFPB 

proposed 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 estimated costs and 

losses. These consumer protections 

allow consumers to better comparison 

shop across credit products and provide 

substantive protections that apply to 

other consumer credit. 

As a result of the evolution of the 

overdraft market over the last few 

decades, the regulatory exceptions for 

overdraft credit provided by very large 

financial institutions no longer serve 

their original purpose. The CFPB 

proposed preserving a limited exception 

to encourage the availability of overdraft 

coverage, which can benefit consumers, 

especially given that much overdraft 

credit is incidental in nature, as 

consumers often do not know with 

certainty whether a transaction will be 

presented against sufficient funds. But 

the proposal stated that 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 massmarketed high-cost consumer credit 

products—cannot be justified as an 

exception for a courtesy to consumers, 

nor as consistent with TILA’s purposes 

of promoting the informed use of credit 

and comparison shopping across credit 

products, and protecting consumers 

against inaccurate and unfair credit 

billing and credit card practices. 

The CFPB is adopting the same 

general approach in the final rule, with 

some modifications, as discussed 

herein. 

Comments Received on the CFPB’s 

Proposed Approach Generally 

Comments received by the CFPB on 

the proposal, and responses thereto, are 

discussed in more detail throughout this 

part IV. The following is a synopsis of 

comments received on the CFPB’s 

proposed approach generally. 

Many of the commenters supported 

the CFPB’s proposal, stating among 

other things that the rule would reduce 

fee burdens and associated 

consequences and support the informed 

use of credit. These commenters 

generally focused on negative consumer 

experiences with overdraft fees, stating 

that what began as a narrow exception 

to provide for occasional 

accommodation now generates billions 

of dollars in fees from vulnerable 

populations. A State agency commenter 

noted that overdraft fees can discourage 

many consumers from wanting a bank 

account at all and noted that overdraft 

fees can deduct funds from a 

consumer’s public benefits, thereby 

frustrating the purpose of those benefit 

programs. A consumer advocate 

commenter noted that some financial 

institutions are already lowering fees or 

offering alternative products to meet 

consumer needs and posited that the 

CFPB’s proposal would continue this 

progress by supporting market shifts 

that benefit consumers. Another 

commenter noted that the proposal 

continues to offer flexibility to covered 

entities such that they may offer 

overdraft as courtesy non-covered 

overdraft or as a covered overdraft line 

of credit. 

Other commenters, including banks, 

credit unions, and industry groups, did 

not support the proposed rule, arguing, 

for example, that it is unnecessary 

because overdraft fees are already 

effectively disclosed consistent with 

Regulations DD and E, and that 

consumers find value in overdraft 

programs and expressly opt into them. 

Therefore, some argued that the CFPB 

should further study why consumers 

sometimes use higher-cost credit 

options and, in the case of overdraft 

programs, expressly opt into them, 

before proposing new regulations to 

ensure that any changes will achieve 

their goals. Commenters also 

emphasized a number of changes to 

overdraft programs that have already 

reduced fees in recent years and noted 

that if the proposal is finalized, 

financial institutions might pass along 

costs to consumers by increasing other 

fees or limiting credit or other services, 

including the possibility that 

transactions would not be paid through 

overdraft credit but would instead be 

declined or that consumers might 

migrate to less regulated credit 

alternatives. Some commenters objected 

to the CFPB’s focus on whether 

overdraft fees recover more than 

applicable costs and losses. 

B. Entity Coverage 

Proposed Rule 

The CFPB proposed to expand 

protections to consumers of overdraft 

credit at financial institutions with more 

than $10 billion in assets. Under the 

proposal, the regulatory framework 

would not change 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 have 

defined 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. The proposed rule then used 

the term ‘‘very large financial 

institution’’ to limit the scope of 

overdraft credit that would be subject to 

the proposed rule. 

The CFPB preliminarily determined 

in the proposal that overdraft services 

offered by financial institutions with 

more than $10 billion in assets should 

be subject to this rule. The proposal 

noted that, 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 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 preliminarily determined 

in the proposal that consumers would 

benefit from a rule that would apply to 

very large financial institutions—i.e., 

those with assets of $10 billion or more. 

The proposal noted that such a rule 

would increase protections for the 

overwhelming majority of consumers of 

overdraft credit. The CFPB noted that 

the proposed rule would have covered 


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112Computed from 2022 FFIEC and National 

Credit Union Administration call report data. 113Estimated using data from 2022 FFIEC Call 

Reports and methodology discussed at FN 29. 

financial institutions holding 

approximately 80 percent of consumer 

deposits as of December 2022 112 and 

responsible for approximately 68 

percent of overdraft charges as of 

December 2022.113 The CFPB 

preliminarily determined that 

consumers at very large financial 

institutions would benefit from the 

expanded protections that would be 

provided by the proposed rule. 

The CFPB noted that in light of the 

different circumstances smaller 

financial institutions may face in 

adapting to the proposed regulatory 

framework, the CFPB did not propose to 

extend the proposed rule to those 

institutions with $10 billion or less in 

assets. The CFPB noted that while it did 

not propose 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 requested 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. 

For the reasons discussed below, the 

CFPB is adopting the very large 

financial institution definition as 

proposed. 

Comments Received 

Several commenters, including 

several consumer advocates, supported 

the proposal’s approach to apply the 

rule to very large financial institutions. 

They stated that the rule would benefit 

a majority of consumers, that very large 

financial institutions have greater 

resources to adapt to regulatory changes, 

and that the CFPB may need additional 

time to gather relevant cost data for 

smaller financial institutions. These 

commenters recommended that the 

CFPB take steps to conduct a 

rulemaking as soon as possible to 

consider expanding the scope of the rule 

to entities that are not very large 

financial institutions (non-VLFIs). 

A number of industry commenters 

maintained that the CFPB did not 

provide a sufficient justification for 

applying the rule only to very large 

financial institutions. The industry 

commenters criticized on several 

different grounds the proposed rule’s 

approach to apply the revised regulatory 

framework only to very large financial 

institutions. 

Some industry commenters stated that 

the CFPB lacks authority to apply the 

rule only to very large financial 

institutions. Several industry 

commenters maintained that the 

differential treatment of very large 

financial institutions would be 

inconsistent with TILA, stating that the 

proposed rule did not explain why 

subjecting smaller financial institutions 

to the rule would not provide a 

meaningful benefit to consumers while 

subjecting very large financial 

institutions to the rule would provide a 

meaningful benefit. Other industry 

commenters stated that the proposal did 

not consider the five factors for an 

exemption under section 105(f)(2) of 

TILA and that the CFPB did not explain 

why it would be appropriate to define 

overdraft as credit and an overdraft fee 

as a finance charge only for very large 

financial institutions. 

Several industry commenters stated 

that the proposal failed to provide a 

sufficient explanation for covering only 

very large financial institutions. The 

commenters stated that the proposal 

noted the $10 billion supervisory 

threshold but did not sufficiently 

explain why that threshold was relevant 

for exempting very large financial 

institutions from the proposed overdraft 

rule. While these commenters 

acknowledged that the proposal noted 

that smaller financial institutions may 

face ‘‘different circumstances,’’ they 

maintained that the proposal did not 

sufficiently explain what those 

circumstances are and why they are 

relevant. 

Several industry commenters stated 

that the proposal provided insufficient 

data to support applying the rule only 

to very large financial institutions. The 

commenters stated that data cited in the 

proposed rule indicated that smaller 

financial institutions hold only 20 

percent of deposits but receive 32 

percent of overdraft fees. Commenters 

stated the CFPB’s own data indicate that 

smaller financial institutions appear to 

receive similar or greater overdraft fees 

per account compared to larger financial 

institutions. 

Several industry commenters also 

maintained that applying the rule only 

to very large financial institutions 

would cause consumer confusion and 

market disruption. The commenters 

stated that consumers would receive 

different disclosures based upon the 

asset size of their financial institution 

and may not understand the differences 

among the overdraft programs at 

different financial institutions. 

Several industry commenters 

expressed concern that the CFPB’s 

proposal to apply the rule only to very 

large financial institutions avoided the 

CFPB’s SBREFA obligations. Moreover, 

some commenters argued that the CFPB 

did not fulfill its obligations with 

respect to the SBREFA process. 

In addition, many non-VLFI industry 

commenters stated that, even if the rule 

would not apply to non-VLFIs, they 

would nevertheless face competitive 

pressure to alter their overdraft 

programs and reduce their overdraft 

fees. They maintained that, because they 

lack the resources of larger financial 

institutions, they would have difficulty 

altering their overdraft programs and 

reducing their fees to compete with 

larger financial institutions and may be 

forced to decrease availability of or 

discontinue overdraft programs. 

Several commenters, including 

consumer advocates, academic 

commenters, and State Attorneys 

General, recommended that the CFPB 

apply the rule’s framework to all 

financial institutions. They stated that 

non-VLFIs engage in the same 

problematic overdraft practices that 

harm consumers and that all consumers 

should receive the protections from the 

rule’s overdraft framework. Some 

commenters stated that many large 

institutions already have eliminated or 

reduced their overdraft and NSF fees, 

whereas most small institutions have 

not and that the proposed rule therefore 

would not apply to many of the 

institutions that are causing significant 

harm to their consumers through their 

overdraft programs. 

A couple of commenters 

recommended adjusting the threshold. 

One consumer advocate supported 

reducing the threshold to the SBREFA 

threshold of $850 million, noting that 

the rule provides multiple pathways for 

financial institutions to determine 

breakeven overdraft fees. A few other 

commenters recommended raising the 

threshold to $100 billion or more, 

arguing that the largest financial 

institutions have the resources to adapt 

to regulatory changes. 

Some commenters, including a 

consumer advocate and a bank, raised 

concerns that nonbanks that partner 

with banks to offer bank accounts could 

evade coverage under the rule. They 

stated that large nonbanks could evade 

the rule by partnering with multiple 

smaller banks with assets under $10 

billion. The consumer advocate stated 

that some nonbanks offer accounts that 

they claim are checking accounts 

exempt from the prepaid rule and its 

protections applicable to overdraft fees 

on prepaid cards. The consumer 

advocate recommended that the CFPB 

clarify that any such account, even if 

tied to a bank account, is a prepaid 


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114Section 1604(a) provides that the CFPB may 

prescribe regulations that contain 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. The CFPB likewise does not 

have to invoke this statutory adjustment or 

exception authority to narrow the scope of an 

existing exception. 

account. Alternatively, the consumer 

advocate recommended that the CFPB 

expand the rule’s definition of ‘‘very 

large financial institution’’ by using the 

Regulation E definition of ‘‘financial 

institution,’’ which is broader than 

depository institutions, and including 

within the scope of the rule nonbanks 

that offer accounts in partnership with 

depository institutions. Otherwise, the 

consumer advocate stated, nonbanks 

will partner with one or more smaller 

financial institutions with less than $10 

billion in assets to ensure that their 

accounts would not be subject to this 

rule. The consumer advocate stated that 

nonbanks already are using these 

partnerships to avoid having to comply 

with the Durbin Amendment’s 

interchange fee limits. 

Final Rule 

For the reasons stated in the proposal 

and below, the CFPB is adopting the 

very large financial institution 

definition as proposed to expand 

protections for consumers of overdraft 

credit at financial institutions with more 

than $10 billion in assets. The rule does 

not change the regulatory framework for 

overdraft credit offered at financial 

institutions with $10 billion or less in 

assets. The CFPB plans to monitor 

market responses to the protections 

adopted in this rule, analyze additional 

information, and consider whether to 

apply expanded protections to overdraft 

credit offered by financial institutions 

with $10 billion or less in assets. As in 

the proposed rule, the final rule defines 

the term ‘‘very large financial 

institution’’ in § 1026.62(b)(6) 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/. The final rule uses the 

term very large financial institution to 

limit the scope of overdraft credit that 

is subject to the final rule. 

The CFPB has determined that it is 

appropriate to move forward with a rule 

that expands protections for consumers 

of overdraft credit at very large financial 

institutions. The majority of consumers 

will benefit from such a rule. As noted 

above, approximately 80 percent of 

consumer deposits are at very large 

financial institutions, and more than 

two-thirds of overdraft fees were 

imposed by very large financial 

institutions. Using its supervision and 

market monitoring capabilities, the 

CFPB has observed recent market 

changes for overdraft programs, 

especially at very large financial 

institutions. Many very large financial 

institutions have altered their overdraft 

programs and reduced or eliminated 

overdraft fees without imposing 

additional fees, indicating that very 

large financial institutions have the 

capacity to adapt their overdraft 

programs without impairing their 

provisions of other products and 

services. 

By contrast, smaller financial 

institutions may have less flexibility in 

adapting to changes in the regulatory 

framework for overdraft credit. To the 

extent that changes to the regulatory 

framework would result in a reduction 

in overdraft revenue, smaller financial 

institutions may have greater difficulty 

in absorbing a reduction in overdraft 

revenue without it having some impact 

on their operations, and this impact 

could negatively affect consumers at 

smaller financial institutions. Although 

the CFPB has less information about 

smaller financial institutions, 

information from the bank call reports 

and comments on the proposal indicate 

that smaller financial institutions 

currently are more reliant on overdraft 

revenue under the existing regulatory 

framework than very large financial 

institutions. For example, based on 2023 

call report data, combined revenue from 

overdraft and NSF charges was 44 

percent of deposit service charges and 

4.7 percent of noninterest income for 

banks with assets between $1 billion 

and $10 billion, as compared to 19 

percent and 1.8 percent, respectively, 

for banks with assets greater than $10 

billion. These data suggest that smaller 

financial institutions are more reliant on 

overdraft revenue and may be less able 

to adapt to a regulatory framework that 

results in reductions in overdraft 

revenue. A number of non-VLFI 

industry commenters claimed that if 

they were subject to the rule, they 

would face significant challenges that 

would cause them to alter or eliminate 

their overdraft programs and impair 

their ability to offer other products and 

services. Moreover, as a consumer 

advocate commenter noted, smaller 

institutions may have less flexibility to 

adjust their product offerings. 

As noted above, many very large 

financial institutions have recently 

adjusted their overdraft credit programs 

by, among other things, reducing or 

eliminating fees. This suggests that very 

large financial institutions, with their 

diverse product offerings and multiple 

sources of revenue, would have 

flexibility to respond to changes in the 

regulatory framework for overdraft 

credit and would be able to adapt to a 

reduction in fee revenue from noncovered overdraft credit. This also 

suggests that, if very large financial 

institutions want to continue offering 

non-covered overdraft credit that is not 

subject to Regulation Z after the rule 

goes into effect, they should be able to 

reduce their fees to continue providing 

non-covered overdraft credit. The CFPB 

has not observed a significant number of 

smaller financial institutions modifying 

their overdraft credit offerings to reduce 

or eliminate overdraft fees. On the 

contrary, the CFPB received feedback 

from smaller financial institutions 

stating that they were not capable of 

making such changes. Given the CFPB’s 

limited information about the potential 

impact that revising the regulatory 

framework for overdraft credit could 

have on smaller financial institutions, 

and the consumers that rely on those 

smaller financial institutions, the CFPB 

has determined that it should proceed at 

this time with a rulemaking that 

narrows the exceptions only for very 

large financial institutions, i.e., those 

with assets of $10 billion or more. 

As noted above, several industry 

commenters stated that the CFPB lacks 

authority under TILA to revise the 

regulatory framework only for very large 

financial institutions, maintaining that 

the proposed rule did not consider the 

standards for TILA exemptions under 

section 1604(f). As discussed in more 

detail elsewhere, including in the 

section discussing changes to the 

definition of finance charge, the CFPB is 

partially removing the existing 

regulatory exceptions created by the 

Board, not creating new exemptions 

from TILA or Regulation Z, and 

therefore need not invoke its statutory 

exception or exemption authority. 

Section 1604(f)(2) starts with the phrase 

‘‘[i]n determining which classes of 

transactions to exempt,’’ and then 

provides a list of factors that the CFPB 

would need to consider to justify 

creating an exemption under that 

authority. It is not a list of factors the 

CFPB must consider to justify partially 

removing an existing exception, which 

is what this rule does.114 And the CFPB 


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106780 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

is not obligated to justify the portion of 

the Board’s exception that the CFPB is 

not reversing (the portion applicable to 

non-VLFIs) using those factors) just 

because the CFPB is declining at this 

time to remove that portion of the 

existing exception due to the policy and 

prudential reasons described herein. As 

noted above, the CFPB plans to monitor 

market responses to the protections 

adopted in this rule and consider 

whether to remove the exception as to 

smaller financial institutions. 

Nevertheless, these changes are also 

consistent with TILA § 105(a), which 

grants the CFPB authority to establish 

‘‘additional requirements, 

classifications, differentiations, or other 

provisions, and may provide for such 

adjustments and exceptions for all or 

any class of transactions, as in the 

judgment of the [CFPB] are necessary or 

proper to effectuate the purposes of this 

subchapter, to prevent circumvention or 

evasion thereof, or to facilitate 

compliance therewith.’’ Consistent with 

the discussion above, the CFPB has 

determined that covering overdraft 

credit only from VLFIs in this rule at 

this time will facilitate compliance with 

TILA and its purposes by providing the 

protections of TILA and Regulation Z to 

the vast majority of consumers of 

overdraft credit, while the CFPB 

monitors the market impact of the rule, 

but not disturbing the status quo for 

smaller financial institutions that may 

be less equipped to adapt to such 

changes without impacting their 

operations in a manner that could 

negatively affect their consumers. The 

CFPB notes that consumers of overdraft 

credit at smaller institutions will remain 

covered by the existing regulatory 

regime. 

For similar reasons, the CFPB has 

determined that the elimination of the 

regulatory exception to EFTA’s 

compulsory use prohibition only for 

overdraft credit provided by a VLFI is 

consistent with EFTA § 904(c), which 

empowers the CFPB to ‘‘provide for 

such adjustments and exceptions for 

any class of electronic fund transfers or 

remittance transfers as in the judgment 

of the [CFPB] are necessary or proper to 

effectuate the purposes of this 

subchapter, to prevent circumvention or 

evasion thereof, or to facilitate 

compliance therewith,’’ and also to 

‘‘modify the requirements imposed by 

[EFTA] on small financial institutions if 

the Bureau 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 [EFTA].’’ The 

CFPB has determined that, because 

smaller financial institutions may face 

difficulty in adapting to these regulatory 

changes without negatively impacting 

their consumer base, applying the 

amendment to the compulsory use 

exception only to VLFIs in this rule at 

this time will prevent undue 

compliance burden on those 

institutions, facilitate compliance with 

EFTA, and be consistent with the 

purpose and objective of EFTA by 

continuing, for now, the existing 

regulatory framework establishing the 

rights, liabilities, and responsibilities of 

participants in those electronic fund 

transfer systems while the CFPB 

monitors the market impact of the rule. 

Several industry commenters 

maintained that the CFPB lacks data for 

its approach of limiting the applicability 

of the rule to very large financial 

institutions, noting that non-VLFIs hold 

only 20 percent of deposits but receive 

32 percent of overdraft fees. As noted 

above, the CFPB has concluded that it 

is appropriate to adopt a rule now that 

covers very large financial institutions 

because the CFPB has more information 

about overdraft programs at very large 

financial institutions and about the 

capacity for them to adapt to a revised 

regulatory framework and because such 

a rule would provide protections to a 

significant majority of consumers. The 

CFPB has limited information about the 

costs for overdraft programs at smaller 

financial institutions and the cost data 

that the CFPB relied upon in developing 

the benchmark fee in § 1026.62(d)(1)(ii) 

may not be representative of the costs 

for non-VLFIs. The CFPB is concerned 

that non-VLFIs would face more 

significant challenges in adapting to a 

revised regulatory framework. The CFPB 

is not basing its decision to apply this 

rule to VLFIs on material differences in 

the overdraft programs at very large 

financial institutions and non-VLFIs. 

Several industry commenters also 

stated that applying the rule only to 

very large financial institutions would 

cause consumer confusion and market 

disruption. They noted that the rule 

would result in a marketplace in which 

consumers would receive different 

disclosures for otherwise similar 

services based upon the size of the 

financial institution. The CFPB 

appreciates that the rule would create 

some differences in regulatory treatment 

of overdraft programs in the 

marketplace. However, the CFPB 

concludes that the benefits of providing 

additional protections to most 

consumers while proceeding cautiously 

with respect to smaller financial 

institutions outweighs those concerns. 

The CFPB plans to monitor market 

responses to the protections adopted in 

this rule. 

As noted above, a number of industry 

commenters maintained that the CFPB 

did not comply with its obligations 

under the SBREFA process. Several 

non-VLFI industry commenters 

maintained that the rule will have a 

negative impact on their financial 

condition and their ability to offer 

overdraft products and other products 

and services because market pressures 

will force non-VLFIs to lower their 

overdraft fees and adjust their overdraft 

programs even if the rule itself does not 

require them to do so. Other 

commenters maintained that the CFPB’s 

decision to remove the existing 

exception for larger financial 

institutions but not for smaller financial 

institutions was designed to circumvent 

SBREFA. But leaving in place an 

existing exception for smaller financial 

institutions is not inconsistent with 

SBREFA. The CFPB has complied with 

its obligations under SBREFA. The rule 

does not require non-VLFIs to comply 

with the revised regulatory framework, 

and any competitive pressures to adjust 

their overdraft programs are indirect 

and uncertain. It is far from clear that 

market forces will force non-VLFIs to 

adjust their overdraft programs. As 

noted above, many very large financial 

institutions already have adjusted their 

overdraft programs, including by 

reducing or eliminating overdraft fees, 

but these changes have not forced other 

non-VLFIs to alter their overdraft 

programs similarly. 

The CFPB has concluded that $10 

billion is an appropriate asset threshold 

for this rulemaking. The CFPB reached 

the decision to use $10 billion as the 

threshold by borrowing from Congress’s 

policy judgment to use that threshold to 

separate very large financial institutions 

from smaller entities in other contexts 

in the CFPA. The CFPB also considered 

the lower threshold of $850 million 

used by the SBA to define small 

financial institutions, but decided to 

take the more prudent and cautious 

approach of initially finalizing a higher 

threshold that applies only to ‘‘very 

large’’ entities and not just ‘‘large’’ 

entities. Congress used a relatively high 

$10 billion threshold to define ‘‘very 

large banks, credit unions, and savings 

associations’’ for purposes of limiting 

the CFPB’s primary supervision and 

enforcement authority to very large 

depository institutions. The CFPB will 

be able to use its primary supervisory 

authority to closely monitor the 

implementation of the rule with respect 

to these entities, which will aid its 

understanding of the effects of the rule 

as the CFPB studies the market to 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106781 

115 15 U.S.C. 1602(f). 

116 81 FR 83934, 84168 (Nov. 22, 2016). 

117 70 FR 9127, 9129 (Feb. 24, 2005). 

118OCC Interpretive Letter No. 914 (Aug. 3, 2001). 

determine whether and what regulations 

are appropriate for the rest of the 

market. 

The CFPB has concluded that 

updating the regulatory framework is 

appropriate for very large financial 

institutions for several reasons, 

including that the CFPB has more 

information about overdraft credit 

offered by financial institutions with 

more than $10 billion in assets and 

about their ability to adapt to changes in 

the regulatory framework for their 

overdraft programs. As noted above, 

financial institutions with more than 

$10 billion in assets have greater 

diversity in product offerings and likely 

would have greater flexibility in 

adapting quickly to a revised regulatory 

framework for overdraft credit. Indeed, 

as also noted above, many financial 

institutions with more than $10 billion 

in assets already have modified their 

overdraft credit offerings to reduce or 

eliminate overdraft fees and available 

evidence indicates that these financial 

institutions are less reliant on overdraft 

revenue, indicating that they have the 

ability to adapt to any reductions in 

overdraft revenue that may result from 

these changes to the regulatory 

framework for overdraft credit. 

As noted above, a bank and a 

consumer advocate raised concerns 

about nonbanks evading the rule by 

partnering with smaller banks to offer 

accounts with overdraft credit. The 

consumer advocate recommended 

clarifying that such accounts offered by 

nonbanks are prepaid accounts subject 

to the protections of the prepaid rule or, 

alternatively, revising the definition of 

‘‘very large financial institution’’ in this 

rule to cover nonbanks with more than 

$10 billion in assets. The CFPB declines 

to address in this rule whether such 

accounts would be considered prepaid 

accounts. The CFPB also declines to 

revise the definition of ‘‘very large 

financial institution’’ to include 

nonbanks. Nevertheless, the CFPB will 

continue to monitor the market and will 

analyze whether any market 

participants are taking steps to evade 

coverage under the rule. 

C. Transaction and Account Coverage 

The CFPB proposed to add 

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

of transactions and accounts that would 

be covered under the proposed rule. As 

discussed below, to update nonstatutory exceptions in Regulation Z, the 

proposed updates included defined 

terms (e.g., ‘‘above breakeven overdraft 

credit,’’ ‘‘covered asset account,’’ and 

‘‘hybrid debit-credit card’’) that 

specifically reference a ‘‘very large 

financial institution,’’ as defined in 

proposed § 1026.62(b)(8). The proposal 

would not change the regulatory 

framework for overdraft services offered 

by financial institutions with assets of 

$10 billion or less. 

The proposal defined overdraft credit 

in proposed § 1026.62(a)(2), and also 

provided an example of overdraft credit 

in proposed comment 2(a)(14)–4. The 

CFPB’s proposed rule would have 

added commentary to the definition of 

open-end 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 CFPB 

proposed definitions of covered 

overdraft credit and non-covered 

overdraft credit by adding § 1026.62(b) 

to assist with ease of reference. The 

proposal provided that covered 

overdraft credit 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. The proposal 

provided that non-covered overdraft 

credit 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 proposed to add a definition 

for covered overdraft credit account to 

facilitate ease of reference to credit 

accounts through which the financial 

institutions extend or can extend 

covered overdraft credit. Each of these 

proposed amendments is discussed 

below. 

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.115 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. 

The CFPB’s Proposal 

To facilitate compliance, proposed 

comment 2(a)(14)–4 provided an 

example of 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 whenever the consumer has 

a contractual obligation to repay the 

funds. The proposal noted, as stated in 

the 2016 Prepaid Final Rule, that a 

‘‘person, in extending overdraft funds, 

has provided the consumer with ‘the 

right . . . to incur debt and defer its 

payment.’ ’’ 116

As part of defining the scope of credit 

transactions that would be covered 

under the proposed rule, proposed 

§ 1026.62(a)(2) provided a definition of 

‘‘overdraft credit’’: 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)(2) provided nonexhaustive examples, such as consumer 

credit extended through a transfer from 

a credit card account or overdraft line of 

credit. The definition of ‘‘overdraft 

credit’’ in proposed § 1026.62(a)(2) did 

not include credit exempt from 

Regulation Z pursuant to existing 

§ 1026.3. 

For the reasons discussed below, the 

CFPB is adopting comment 2(a)(14)–4 

substantially as proposed and is 

adopting § 1026.62(a) as proposed. The 

CFPB is also adopting a proposed cross 

reference to the definition of ‘‘overdraft 

credit’’ at § 1026.62(b)(7) as proposed 

but with technical changes to conform 

to Code of Federal Regulations style 

requirements. 

Comments Received 

Several commenters, including State 

Attorneys General, consumer advocates, 

and nonprofits, agreed that when a 

financial institution extends funds to 

pay transactions that overdraw a 

checking account held at the financial 

institution, the financial institution is 

providing credit. A consumer advocate 

commenter stated that it is common 

sense that overdraft is credit and that 

regulators, including the Board, have 

long acknowledged that overdraft is 

credit. For example, the commenter 

noted that in 2005 the Board—along 

with the OCC, FDIC, and National 

Credit Union Administration—issued 

Joint Guidance on Overdraft Protection 

Programs, which stated that ‘‘[w]hen 

overdrafts are paid, credit is 

extended.’’ 117 Among other examples, 

the commenter also pointed to a 2001 

OCC interpretive letter stating that an 

‘‘overdraft would be ‘credit,’ as defined 

by the Truth in Lending Act and 

Regulation Z.’’ 118

A nonprofit commenter stated that the 

TILA statute defines ‘‘credit’’ broadly 

and does not exclude overdraft. The 

commenter further stated that when the 

Board excepted certain overdraft 


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119 42 FR 22360, 22362 (May 3, 1977). 

120 Legg v. W. Bank, 873 NW 2d 763, 770 (Iowa 

2016). 

121 15 U.S.C. 1602(f). 

122 15 U.S.C. 1604(a). 

123 81 FR 83934, 84167–68 (Nov. 22, 2016). 

124 15 U.S.C. 1602(f). 

125 15 U.S.C. 1604(a). 

126Commenters disagreed about whether the 

Board, in issuing the original regulatory exception 

for certain overdraft fees from TILA’s definition of 

finance charge, was relying on its delegated 

authority to create adjustments and exceptions or 

was using its delegated rule-writing authority to 

implement an interpretation of a statutory provision 

of TILA. The Board’s original 1969 issuance over 50 

years ago was not explicit about what authority it 

used for the overdraft charge exception. 34 FR 2002, 

2004 (Feb. 11, 1969). And it neither discussed 

policy rationales nor interpretation of statutory text. 

The proposal did, however, invoke the Board’s 

exception authority generally. 33 FR 15506 (Oct. 18, 

1968). The inclusion of a specific ‘‘exception’’ for 

overdraft charges that would have met the general 

definition of finance charge but for the exception, 

in a rule that did not state it was an interpretation 

or engage in textual interpretation, suggests the 

exception was not created as an interpretive 

exercise. Regardless, the CFPB has put forward its 

interpretation of the relevant provisions of TILA in 

charges from Regulation Z’s definition 

of ‘‘finance charge,’’ the Board did not 

rely on an interpretation of the terms 

‘‘finance charge’’ or ‘‘credit’’ in the 

statute (rather, the Board used its 

authority to create a regulatory 

exception). A consumer advocate 

commenter stated that it is immaterial to 

the definition of ‘‘credit’’ whether the 

financial institution has previously 

committed to pay overdrafts or has an 

absolute right to use every means to 

collect repayment; rather, ‘‘credit’’ 

simply means the right to defer payment 

of debt or to incur debt and defer its 

payment. 

Several industry commenters asserted 

that overdraft is not credit under TILA 

and that TILA does not confer authority 

upon the CFPB to regulate overdraft. A 

commenter stated that the term 

‘‘overdraft’’ does not appear in TILA’s 

text and that the legislative history is 

similarly silent on the issue. Some 

commenters stated that, if the intent of 

Congress was for overdraft to be subject 

to TILA, then Congress would have 

amended TILA to supersede the Board’s 

regulatory exception for overdraft. 

Several commenters asserted that in 

1969 when the Board excepted 

discretionary overdraft charges from 

Regulation Z’s definition of ‘‘finance 

charge,’’ it did so because the Board 

determined that discretionary overdraft 

is not ‘‘credit.’’ A commenter asserted 

that the history of Regulation Z and 

various Board statements show that 

discretionary overdraft was never 

considered to be ‘‘credit.’’ For example, 

the commenter pointed to a 1977 

interpretive letter where Board staff 

stated that the regulatory exception for 

overdraft charges ‘‘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, honor a 

check which inadvertently overdraws 

that account.’’ 119

Several commenters stated that 

overdraft is not credit because the 

financial institution retains the right to 

decline transactions that would 

overdraw the account. Some 

commenters stated that overdraft is not 

credit because the consumer is obligated 

to pay the debt within a very short 

timeframe; for example, commenters 

pointed to a State court opinion 

interpreting the Iowa Consumer Credit 

Code definition of ‘‘credit’’ as not 

covering overdraft because the 

consumer ‘‘must pay the bank back 

immediately upon their next 

deposit.’’ 120 Some commenters also 

asserted that overdraft does not involve 

a written obligation, an interest rate, an 

application, or an underwriting process 

and otherwise lacks the hallmarks of 

credit. 

The CFPB received few comments 

regarding the specific language of 

proposed comment 2(a)(14)–4 and 

proposed § 1026.62(a). A consumer 

advocate commenter generally 

supported the language of these 

proposed provisions and made some 

suggestions. First, in addition to the 

proposed language referencing a 

contractual ‘‘obligation,’’ the commenter 

suggested referencing a contractual 

agreement regardless of whether the 

financial institution has agreed to limit 

its means of recourse if the consumer 

does not repay. Second, the commenter 

suggested revisions to reflect the 

possibility that overdraft credit could be 

extended by a different entity than the 

financial institution that holds the 

account. Third, the commenter 

suggested referencing an ‘‘asset 

account’’ rather than a ‘‘checking or 

other transaction account.’’ Fourth, 

among other non-exhaustive examples 

of overdraft credit, the commenter 

suggested adding a reference to 

‘‘overdraft services’’ as defined in 

Regulation E § 1005.17(a). 

Final Rule 

For the reasons discussed below, the 

CFPB is adopting comment 2(a)(14)–4 

substantially as proposed and is 

adopting § 1026.62(a) as proposed. As 

proposed, § 1026.62(a)(2) provided the 

definition of ‘‘overdraft credit’’ and the 

CFPB is finalizing it without change. 

The definition of ‘‘overdraft credit’’ does 

not include credit exempt from 

Regulation Z pursuant to existing 

§ 1026.3 (e.g., transactions in securities 

or commodities accounts in which 

credit is extended by a broker-dealer 

registered with the Securities and 

Exchange Commission or the 

Commodity Futures Trading 

Commission). Nor does the definition of 

‘‘overdraft credit’’ cover prepaid 

accounts, as the CFPB’s Prepaid 

Accounts Rule already provides 

comprehensive consumer protections 

tailored to prepaid accounts. 

Arguments that overdraft is not credit 

under TILA or that TILA does not confer 

authority upon the CFPB to regulate 

overdraft are not supported by the 

statute itself. The final rule is consistent 

with TILA’s definition of ‘‘credit’’ 121

and with the CFPB’s statutory authority 

under TILA section 105(a).122

TILA defines ‘‘credit’’ broadly and 

does not exclude overdraft. As stated in 

the 2016 Prepaid Final Rule, ‘‘[b]y 

authorizing or paying a transaction 

where the consumer does not have 

sufficient or available funds . . . to 

cover the amount of the transaction 

when the transaction is authorized or 

paid, the [institution] is allowing the 

consumer to incur a debt with the 

[institution] where payment of that debt 

is not immediate.’’ 123 Thus, when a 

transaction exceeds the funds in the 

consumer’s account and a financial 

institution elects to cover the 

transaction by extending overdraft 

funds, then the financial institution has 

provided the consumer with the right to 

defer payment of debt or to incur debt 

and defer its payment, and therefore has 

extended ‘‘credit’’ under the plain 

language of TILA’s definition.124

The fact that Congress did not 

legislatively supersede the Board’s 

regulatory exception for overdraft does 

not demonstrate that overdraft is outside 

the scope of TILA. Rather, Congress 

provided a broad definition of ‘‘credit’’ 

under the statute and then delegated to 

the Board (and, later, the CFPB) the 

authority to prescribe regulations ‘‘to 

carry out the purposes of’’ TILA and 

which ‘‘may provide for such 

adjustments and exceptions . . . as in 

the judgment of the [agency] are 

necessary or proper to effectuate the 

purposes of [TILA], to prevent 

circumvention or evasion thereof, or to 

facilitate compliance therewith.’’ 125 The 

Board used its delegated authority to 

create a regulatory exception from the 

definition of finance charge for certain 

overdraft fees and the CFPB is using its 

authority to narrow that exception.126


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this rule and explained why the statute covers 

overdraft fees. 

127 12 CFR 1026.4(c)(3). 

128Regulation Z comment 13(i)–2 (emphasis 

added). 

129 Id. (emphasis added). 

130 42 FR 22360, 22362 (May 3, 1977). 

131 Id. (emphasis added). 

132Compare Regulation Z comment 13(i)–2 

(providing that credit inadvertently extended 

incident to an electronic fund transfer using a debit 

card is governed solely by Regulation E error 

resolution procedures), with Regulation Z comment 

13(i)–3 (providing that certain Regulation Z error 

resolution provisions apply if a consumer uses a 

debit card to withdraw money at an automated 

teller machine and activates an overdraft credit 

feature). 

133 12 CFR 1026.4(c)(3). 

134 15 U.S.C. 1602(f); see also 12 CFR 

1026.2(a)(14). 

135 15 U.S.C. 1602(f). 

136 81 FR 83934, 84176 (Nov. 22, 2016). 

137 Id. at 84167–68. 

138 15 U.S.C. 1602(f). 

Commenters’ assertion that the Board 

determined that discretionary overdraft 

is not ‘‘credit’’ conflates the definition 

of ‘‘credit’’ with the definition of 

‘‘finance charge.’’ The history of 

Regulation Z and the Board’s statements 

show that the Board excepted certain 

overdraft charges from Regulation Z’s 

definition of ‘‘finance charge,’’ which 

would have been unnecessary if 

overdraft was not credit. The Board did 

not except overdraft from the definition 

of ‘‘credit.’’ Existing Regulation Z’s 

definition of ‘‘finance charge’’ excepts 

overdraft charges ‘‘unless the payment 

of such items and the imposition of the 

charge were previously agreed upon in 

writing.’’ 127 But the fact that these 

charges were not considered ‘‘finance 

charges’’ under the regulation does not 

mean that the underlying overdrafts 

were not considered credit. For 

example, existing Regulation Z 

commentary acknowledges the 

existence of ‘‘incidental credit that is 

not extended under an agreement 

between the consumer and the financial 

institution.’’ 128 One example of such 

incidental ‘‘credit’’ in the overdraft 

context is ‘‘credit inadvertently 

extended incident to an electronic fund 

transfer using a debit card, . . . if the 

bank and the consumer do not have an 

agreement to extend credit when the 

consumer’s account is overdrawn.’’ 129

Incidental overdraft credit remains 

‘‘credit,’’ notwithstanding that the Board 

excepted the overdraft charges from 

Regulation Z’s definition of ‘‘finance 

charge.’’ 

Regarding the 1977 interpretive letter 

cited by a commenter, the CFPB notes 

that the letter addresses whether certain 

overdraft charges are finance charges, 

not whether overdraft is credit.130 Board 

staff did not exclude overdraft from the 

definition of ‘‘credit.’’ Rather, the letter 

states that the Board’s regulatory 

exception for overdraft charges (i.e., 

excepting them from Regulation Z’s 

definition of ‘‘finance charge’’) ‘‘relates 

only to regular demand deposit 

accounts which carry no credit features 

and in which a bank may occasionally 

. . . honor a check which inadvertently 

overdraws that account.’’ 131 Existing 

Regulation Z commentary similarly 

distinguishes between an account with 

incidental overdraft credit and an 

account with an overdraft ‘‘credit 

feature.’’ 132 On a deposit account with 

no ‘‘credit feature,’’ as explained above, 

charges for incidental overdraft credit 

are excepted from existing Regulation 

Z’s definition of ‘‘finance charge’’—but 

nonetheless the incidental overdraft 

credit remains ‘‘credit.’’ 

Commenters’ argument that overdraft 

is not credit because the financial 

institution retains the right to decline 

overdraft transactions is not consistent 

with the text of TILA and likewise 

appears to conflate the definition of 

‘‘credit’’ with the definition of ‘‘finance 

charge.’’ The Board excepted overdraft 

charges from Regulation Z’s definition 

of ‘‘finance charge’’ depending on 

whether the payment and charge were 

‘‘previously agreed upon’’ in writing.133

The TILA definition of ‘‘credit’’ requires 

a ‘‘right’’ (i.e., the right to defer payment 

of debt or to incur debt and defer its 

payment)—but does not require that 

such right be previously agreed upon.134

Notwithstanding that a financial 

institution had retained discretion and 

could have declined an overdraft 

transaction, when the financial 

institution nonetheless elects to cover 

the transaction by extending overdraft 

funds, then the financial institution has 

provided the consumer with the ‘‘right’’ 

to defer payment of debt or to incur debt 

and defer its payment, and has therefore 

extended ‘‘credit’’ under the plain 

language of TILA’s definition.135

Moreover, it is well established that a 

financial institution’s right to decline 

transactions does not prevent those 

transactions from constituting credit 

under TILA: as the CFPB noted in its 

proposal and previously in the 2016 

Prepaid Final Rule, credit card issuers 

reserve the right to reject individual 

transactions in their contractual 

agreements, yet credit card programs are 

regulated as credit under TILA and 

Regulation Z.136

Regarding commenters’ statements 

that overdraft is not credit because the 

consumer is obligated to pay the debt 

within a very short timeframe, such 

assertion is not supported by TILA. 

When a financial institution extends 

overdraft funds that the consumer must 

pay back upon their next deposit, the 

institution ‘‘is allowing the consumer to 

incur a debt with the [institution] where 

payment of that debt is not 

immediate.’’ 137 And even though the 

consumer’s next deposit to repay the 

institution is typically soon (e.g., on the 

consumer’s next payday), TILA’s 

definition of ‘‘credit’’ does not have an 

exclusion for short-term repayment 

periods. TILA similarly does not 

support commenters’ assertions that 

overdraft is not credit because it lacks 

certain so-called hallmarks of credit 

(e.g., a written obligation, an interest 

rate, an application), or an underwriting 

process. TILA broadly defines ‘‘credit’’ 

to simply mean the right granted by a 

creditor to a debtor to defer payment of 

debt or to incur debt and defer its 

payment.138 TILA does not require a 

transaction to have any of the so-called 

hallmarks to be considered credit. 

Moreover, to the extent that 

commenters’ factual assertions 

accurately describe current market 

practices, some such practices might not 

align with Regulation Z because they 

pertain to currently non-covered 

overdraft credit (e.g., overdraft credit 

with charges excepted from existing 

Regulation Z’s definition of ‘‘finance 

charge’’). Creditors may need to change 

their practices as a result of the final 

rule to come into compliance, but that 

does not mean that such overdraft 

practices today are not credit under 

TILA. 

In response to a commenter’s 

suggestion that proposed comment 

2(a)(14)–4 reference not only a 

contractual ‘‘obligation’’ but also a 

contractual agreement regardless of the 

recourse, the CFPB is not adopting this 

specific suggestion but comment 

2(a)(14)–4, as finalized, highlights that it 

provides but one ‘‘example’’ of overdraft 

credit. Comment 2(a)(14)–4 is not an 

exhaustive list of examples. As 

proposed, § 1026.62(a)(2) provided the 

definition of overdraft credit and the 

CFPB is finalizing it without change. 

Regarding the commenter’s suggested 

revisions to reflect the possibility that 

overdraft credit could be extended by a 

different entity than the financial 

institution that holds the account, the 

CFPB notes that such revisions are 

unnecessary because such credit does 

not fall within the Board’s regulatory 

exception for overdraft and thus such 

credit is generally covered under 

existing Regulation Z. Similarly, it is 

also unnecessary to adopt the 

commenter’s suggestion to reference an 

‘‘asset account,’’ rather than a ‘‘checking 


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139 12 CFR 1026.4(b)(2). 

140 12 CFR 1005.17(a)(1). 

141 15 U.S.C. 1602(j). 

or other transaction account,’’ given that 

the Board referenced a ‘‘checking or 

other transaction account’’ when it 

excepted certain overdraft charges from 

Regulation Z’s definition of ‘‘finance 

charge.’’ 139

In response to the commenter’s 

suggestion to revise proposed 

§ 1026.62(a)(2) by adding a reference to 

‘‘overdraft service’’ as defined in 

Regulation E § 1005.17(a), the CFPB is 

not doing so because, consistent with 

TILA’s broad definition of ‘‘credit,’’ 

§ 1026.62(a)(2) ‘‘includes, but is not 

limited to, any . . . overdraft line of 

credit.’’ The commenter’s suggested 

revision is unnecessary and could 

introduce confusion because the term 

‘‘overdraft service’’ as defined in 

Regulation E § 1005.17(a) ‘‘does not 

include any payment of overdrafts 

pursuant to . . . [a] line of credit subject 

to Regulation Z (12 CFR part 1026), 

including transfers from . . . [an] 

overdraft line of credit.’’ 140

2. Clarifications to Definition of OpenEnd 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. 

This definition is consistent with TILA’s 

definitions of ‘‘open end credit plan’’ 

and ‘‘open end consumer credit plan,’’ 

which mean a plan under which the 

creditor reasonably contemplates 

repeated transactions, which prescribes 

the terms of such transactions, and 

which provides for a finance charge 

which may be computed from time to 

time on the outstanding unpaid 

balance.141

The CFPB’s Proposal 

The CFPB proposed to clarify 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. For clarity and to 

facilitate compliance, the CFPB 

proposed to add commentary regarding 

two terms used in the definition of 

open-end credit: ‘‘plan’’ and ‘‘finance 

charge.’’ 

The CFPB proposed 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 also proposed to add 

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. 

Proposed comment 2(a)(20)–4.iii also 

states that these are finance 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. 

As discussed below, the CFPB is 

finalizing these changes substantially as 

proposed with only minor technical 

revisions for clarity, including to ensure 

that the changes to the commentary 

apply only to very large financial 

institutions. 

Comments Received 

Interpretation That Covered Overdraft 

Credit is Generally Open-End Credit 

Consumer advocate commenters 

supported the proposed rule’s analysis 

concluding that overdraft credit is openend credit. Specifically, the commenters 

agreed with the CFPB’s analysis of some 

of the specific elements of ‘‘open-end 

credit.’’ First, one commenter stated that 

overdraft fees are payable by the 

consumer and are imposed directly by 

banks as an incident to and as a 

condition of the extension of credit, and 

therefore, meet the definition of a 

‘‘finance charge.’’ Second, that 

commenter agreed that a financial 

institution that imposes an overdraft fee 

on an unpaid overdraft is imposing a 

finance charge from time to time on an 

unpaid balance, regardless of whether 

the charge is on the deposit account or 

a separate credit account. Third, the 

commenter agreed that a very large 

financial institution that extends 

covered overdraft credit would be a 

‘‘creditor’’ under TILA because that 

financial institution would regularly 

extend consumer credit subject to a 

finance charge, and the obligation is 

payable to that institution by agreement. 

Finally, the commenter agreed that 

financial institutions that extend 

overdraft credit reasonably contemplate 

that consumers may engage in repeat 

overdrafts. 

Some commenters disagreed with the 

proposal’s determination that overdraft 

credit is open-end credit. One 

commenter questioned the CFPB’s 

authority to categorize overdraft fees as 

‘‘open-end credit,’’ explaining that they 

believe the Board appropriately 

excepted from the definition of ‘‘finance 

charge’’ overdraft fees that are not 

expressly agreed upon in writing 

because this exception aligned with the 

statutory intent of TILA to regulate 

finance charges on ‘‘open end consumer 

credit’’ plans. The commenter did not 

provide further explanation as to why 

the exception aligned with TILA’s 

statutory authority. This commenter 

appears to take issue with the revised 

exceptions to the definition of ‘‘finance 

charge’’ and not with the definition of 

‘‘open-end credit.’’ The CFPB addresses 

the revisions to these exceptions in part 

IV.D below. 

‘‘Plan’’ (Comment 2(a)(20)–2.iv) 

A consumer advocate commenter 

generally supported proposed comment 

2(a)(20)–2.iv. Specifically, the 

commenter agreed that a creditor 

extends credit even if (1) it does not 

agree in writing to extend the overdraft 

credit or (2) it retains the discretion to 

refuse to extend that credit in the future. 

However, the commenter 

recommended that the language 

regarding what constitutes a ‘‘plan’’ 

under the definition of ‘‘open-end 

credit’’ be changed from ‘‘obligated 

contractually to pay’’ to ‘‘obligated or 

contractually agrees to pay’’ because, 

the commenter stated, that financial 

institutions may be able to manipulate 

whether a consumer is considered 

‘‘obligated contractually to pay’’ by 

giving the consumer the right to cancel 

authorization for repayment or limiting 

the financial institution’s recourse for 

repayment. 

The commenter also suggested that 

the comment clarify that a program will 

be considered a ‘‘plan’’ when the 

creditor does not extend credit for 

transactions once the consumer has 

exceeded a certain amount, whether or 

not the limit is disclosed. 

Finance Charge Imposed From Time to 

Time on an Outstanding Balance 

(Comment 1026.2(a)(20)–4.iii) 

A consumer advocate commenter 

supported comment 1026.2(a)(20)–4.iii, 

which clarifies that overdraft fees are 

finance charges imposed from time to 

time on an outstanding balance if there 


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142 15 U.S.C. 1602(f); 12 CFR 1026.2(a)(14). 

143 15 U.S.C. 1602(j). 

is no specific amount financed for the 

plan and regardless of whether the fees 

are imposed on the deposit account or 

the credit account. The commenter 

specifically supported two aspects of 

the statement: (1) that there is a finance 

charge from time to time on the 

outstanding balance of a plan regardless 

of whether the charge is on the deposit 

account or separate credit account; and 

(2) there is a finance charge from time 

to time on the outstanding balance of a 

plan if there is no specific amount 

financed for the plan because the 

amount of any overdraft is never 

precalculated from inception of the 

plan. 

The commenter suggested that the 

term ‘‘deposit account’’ in the comment 

be replaced with ‘‘asset account’’ 

because deposit account is undefined 

and could present problems because 

there is no established regulatory or 

caselaw definition for deposit account. 

Industry commenters stated that the 

proposed comment 2(a)(20)–4.iii would 

introduce ambiguity around finance 

charges. The commenters stated that the 

proposed comment would make it 

difficult for financial institutions to 

determine their obligations when 

establishing overdraft credit products. 

The commenters stated that the 

uncertain financed amount for a plan 

would challenge a financial institution’s 

compliance efforts and their ability to 

transparently disclose terms to 

consumers. 

An individual commenter questioned 

the CFPB’s conclusion that an overdraft 

fee is ‘‘imposed from time to time on an 

outstanding unpaid balance. . . .’’ The 

commenter stated that an overdraft fee 

is imposed because a transaction 

exceeded the dollar amount in the 

account, and it is imposed regardless of 

whether the transaction is paid by the 

financial institution or the amount of 

the overdraft credit extended. 

Final Rule 

For the reasons stated below, the 

CFPB is finalizing comments 2(a)(20)– 

2.iv and 2(a)(20)–4.iii substantially as 

proposed with technical revisions for 

clarity, including to ensure that the 

comments address only the subject of 

the rule, i.e., when a very large financial 

institution covers a transaction that 

would otherwise overdraft a consumer’s 

account. 

Like the proposal, the final rule does 

not revise the definition of ‘‘open-end 

credit.’’ Rather, the final rule adds 

commentary to clarify how overdraft 

products meet the elements of the 

definition of ‘‘open-end credit.’’ 

Specifically, and as discussed herein, 

the final rule adds two comments to 

clarify (1) the definition of a ‘‘plan’’ and 

(2) that overdraft fees 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 commentary does not change the 

term ‘‘open-end credit’’ in Regulation Z, 

which implements the statutory term 

‘‘open end credit plan’’ under TILA. 

Rather, the commentary provides 

clarification in light of the revisions 

made to the regulatory exceptions to the 

definition of ‘‘finance charge.’’ 

Moreover, the commentary facilitates 

compliance with TILA by helping 

participants understand how overdraft 

products may be subject to TILA’s 

requirements as open-end credit. 

In addition, consistent with the 

proposal and as discussed below, the 

CFPB concludes 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. 

Thus, when above breakeven overdraft 

credit becomes covered overdraft credit 

on the effective date of this rule, such 

credit will also likely be considered 

open-end credit. 

(1) Credit. As discussed above, a 

person extending overdraft funds has 

provided credit under TILA and 

Regulation Z.142

(2) Plan. An 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.143

Specifically, but for the Regulation Z 

exceptions, the 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.’’ 

The CFPB is finalizing proposed 

comment 2(a)(20)–2.iv generally as 

proposed (but with technical revisions 

for clarity) to clarify that the reservation 

of discretion in connection with covered 

overdraft does not mean the absence of 

an open-end credit plan. The CFPB 

understands that financial institutions 

offering automated overdraft services 

include in their agreements’ provisions 

governing how the overdraft service will 

operate and information about overdraft 

fees. These terms-and-conditions 

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 as long as the overdraft 

transaction is within the overdraft 

coverage limit that the institution has 

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 

open-end credit plans under TILA and 

Regulation Z. Treating the provision of 

automated overdraft credit in a 

comparable way promotes consistency 

and follows from the text of TILA and 

Regulation Z. Therefore, the CFPB has 

determined that an 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. 

Regarding the commenter’s suggestion 

that comment 2(a)(20)–2.iv be revised to 

state that a ‘‘plan’’ under the definition 

of open-end credit means a program 

where the consumer is ‘‘obligated to or 

contractually agrees to repay any credit 

extended by the creditor’’ instead of 

stating that the consumer is ‘‘obligated 

contractually to repay . . . ’’, the CFPB 

is not adopting this specific suggestion. 

However, the CFPB has determined that 

certain minor changes would help make 

clear that the comment is an illustrative 

example. In particular, comment 

2(a)(20)–2.iv, as finalized, replaces 

‘‘means’’ with ‘‘includes’’ to state ‘‘a 

plan includes a program where the 

consumer is obligated contractually to 

repay any credit extended by the 

creditor.’’ The comment also highlights 

that it is providing one ‘‘example’’ of 

overdraft credit and not an exhaustive 

list of all overdraft credit. 

In response to the same commenter’s 

suggestion that comment 2(a)(20)–2.iv 

be revised to note that a plan under the 

definition of open-end credit will be a 

plan regardless of whether the consumer 

receives disclosure of the overdraft 

credit limit, the CFPB finds this 

clarification unnecessary since existing 

comment 2(a)(20)–5.ii already clarifies 


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144See § 1026.2(a)(17)(i). 145CFPB 2017 Data Point at 13. 

that a creditor does not need to establish 

a specific credit limit for a line of credit. 

The final rule also replaces ‘‘covered 

overdraft credit’’ with ‘‘covered asset 

account’’ to ensure that changes to the 

commentary apply only to very large 

financial institutions. 

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

time to time. Overdraft credit is 

generally subject to fees that would 

meet the definition of ‘‘finance charges’’ 

but for the exceptions created by 

Regulation Z to that statutory definition. 

As discussed elsewhere, this final rule 

modifies those Regulation Z exceptions 

so that above breakeven overdraft credit 

fees will be finance charges when this 

rule becomes effective. Thus, as 

explained below, the CFPB has 

determined that an institution offering 

covered overdraft credit, including 

above-breakeven overdraft credit, is 

generally imposing a finance charge 

from time to time because 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 is finalizing comment 

2(a)(20)–4.iii generally as proposed (but 

with technical revisions for clarity) to 

clarify that (1) charges imposed by a 

very large financial institution for 

paying a transaction that overdraws a 

consumer’s account generally are 

finance charges unless they are 

excluded from the definition of finance 

charge; and (2) 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 any such 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 cannot 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. Therefore, to the extent that any 

finance charge may be imposed in 

connection with such a credit plan, the 

credit plan will meet this criterion. 

Regarding the comment that an 

overdraft fee is not ‘‘imposed from time 

to time on an outstanding unpaid 

balance’’ because the fee is charged on 

the occurrence of there being 

nonsufficient funds in the consumer’s 

account and not based on the extension 

of credit, the CFPB disagrees for the 

reasons explained in more detail in part 

IV.D addressing the definitions of 

‘‘credit’’ and ‘‘finance charge.’’ 

With respect to the commenter stating 

that comment 2(a)(20)–4.iii would 

introduce ambiguity around finance 

charges, the commenter explained that 

this is because a plan with no specific 

finance amount makes it harder for 

financial institutions to determine their 

financial risks and challenges an 

institution’s ability to disclose terms to 

consumers. The CFPB notes that this 

characteristic in overdraft credit is no 

different from any other open-end credit 

product that similarly does not have a 

specific amount financed, and which 

generally must also comply with 

Regulation Z disclosure and other 

regulatory requirements. 

Regarding the commenter’s suggestion 

that comment 2(a)(20)–4.iii reference an 

‘‘asset account,’’ rather than a ‘‘deposit 

account,’’ the CFPB is not adopting this 

specific suggestion. For the same 

reasons provided in relation to 

‘‘overdraft credit’’ in part IV.C.1, the 

CFPB finds it unnecessary to change the 

term to ‘‘asset account.’’ However, the 

final rule replaces ‘‘deposit account’’ 

with ‘‘covered asset account’’ to ensure 

that regulatory changes are limited to 

the subject of this rule, i.e., overdraft 

credit provided by very large financial 

institutions. The final rule also includes 

other clarifying edits, including to 

ensure that comment 2(a)(20)–4.iii 

properly cross-references § 1026.4. 

(4) Person extending credit is a 

creditor. Assuming that overdraft fees 

are finance charges, 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.144 Thus, 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.’’ Further, if an institution 

providing open-end covered overdraft 

credit is considered a ‘‘card issuer,’’ 

then it is also considered a creditor 

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

purposes of Regulation Z, subpart B. 

(5) Reasonably contemplates repeated 

transactions. Institutions providing 

overdraft credit typically contemplate 

repeated overdraft transactions. As 

noted above, the CFPB understands that 

financial institutions offering automated 

overdraft services include in their 

agreements’ provisions governing how 

the overdraft service will operate and 

including information about overdraft 

fees. These agreements contemplate that 

consumers may overdraw repeatedly. 

Further, the CFPB found that 93.2 

percent of overdraft and NSF fees were 

assessed on consumers with four or 

more overdraft or NSF transactions per 

year.145

(6) Amount of credit replenishes when 

outstanding balance is repaid. 

Institutions providing 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 open-end 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 

absolute right 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 concludes 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’s Proposal 

The CFPB proposed 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 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106787 

146Comment 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. 

147 15 U.S.C. 1605(a). 

148 Id. The term finance charge also excludes 

certain fees and amounts imposed by third party 

closing agents. 

149 12 CFR 1026.4(c)(3). 

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 

IV.D, some charges imposed in 

connection with overdraft credit are not 

considered finance charges. 

The proposed definition of ‘‘overdraft 

credit’’ was limited to consumer credit, 

but, even with that qualification, not all 

overdraft credit would be subject to 

Regulation Z under the proposed rule. 

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, 

under the proposed rule, 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) currently 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. 

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.146

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 (non-covered 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 not to 

be card issuers and would therefore not 

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

Comments Received and Final Rule 

A commenter questioned the CFPB’s 

authority to define covered and noncovered overdraft credit because the 

commenter stated that Congress has not 

directed the CFPB to differentiate 

between these two terms. The 

commenter questioned the CFPB’s 

justification for departing from its prior 

approach to treating overdraft under 

Regulation Z because the delineation 

between covered and non-covered 

overdraft credit introduces unnecessary 

complexity. 

The CFPB is finalizing the definition 

of ‘‘covered overdraft credit’’ and ‘‘noncovered overdraft credit’’ as proposed. 

With the addition of these two 

definitions, the CFPB does not create 

any substantive changes to TILA or 

Regulation Z. Instead, the additional 

definitions carry out the purposes of 

TILA by helping participants 

understand which forms of overdraft are 

subject to TILA’s requirements. The 

CFPB did not receive any comments on 

the definition of ‘‘card issuer’’ and is 

finalizing this definition as proposed 

because the CFPB has 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 goals of the final rule. 

4. Covered Overdraft Credit Account 

(§ 1026.62(b)(4)) 

The CFPB’s Proposal 

The proposed rule defined ‘‘covered 

overdraft credit account’’ as a credit 

account through which a financial 

institution extends or can extend 

covered overdraft credit. The term 

would include 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 linked 

checking or other transaction accounts. 

Comments Received and Final Rule 

The comments received on this 

proposed definition agreed with the 

CFPB’s position, and the CFPB is 

finalizing the definition of ‘‘covered 

overdraft credit account’’ without 

change. One consumer advocate 

commenter supported the definition of 

‘‘covered overdraft credit account’’ 

because it believes that any account that 

can be used to access overdraft credit 

should be covered by the rule, 

regardless of the technicalities through 

which the credit is extended. The 

commenter stated that a narrower, more 

specific definition may encourage 

evasions of the rule. 

For the reasons stated above, the 

CFPB is finalizing the definition of 

‘‘covered overdraft credit account’’ as 

proposed. 

D. Changes to Definition of ‘‘Finance 

Charge’’ 

In explaining the meaning of ‘‘finance 

charge,’’ TILA section 106(a) (15 U.S.C. 

1605(a)) 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.’’ 147 The finance 

charge does not include charges of a 

type payable in a comparable cash 

transaction.148

Similarly, 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.’’ 149

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 


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150 12 CFR 1026.4(b)(2). 

151Regulation Z comment 4(b)(2)–1. 

152 89 FR 13852, 13864 (Feb. 23, 2024). 

153See part III.A for a discussion of the CFPB’s 

authority under TILA section 105(a). 

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.150

Neither of these exclusions appear 

within the statutory text of TILA. 

The CFPB proposed to amend the 

definition of ‘‘finance charge’’ in 

§ 1026.4 in three ways. First, it proposed 

to 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 proposed 

to add § 1026.4(b)(12) to provide 

examples of charges imposed in 

connection with overdraft credit that are 

finance charges. Third, it proposed to 

amend the exception provided in 

§ 1026.4(c)(3) so that the exception 

would no longer apply to ‘‘above 

breakeven overdraft credit’’ as defined 

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. Each of these proposed 

changes are discussed below. 

1. Examples of Finance Charges 

(§ 1026.4(b)(2)) 

Section 1026.4(b) provides examples 

of types of charges that are finance 

charges, except if those charges are 

specifically excluded under existing 

§ 1026.4(c) through (e). In particular, 

existing § 1026.4(b)(2) provides that 

examples of finance charges generally 

include service, transaction, activity, 

and carrying charges imposed on a 

checking or other transaction account 

(except a prepaid account as defined in 

§ 1026.61). However, the Board added a 

partial exception to this example such 

that if a charge for an account with a 

credit feature does not exceed the 

charge for a similar account without a 

credit feature, then the charge is not a 

finance charge under existing 

§ 1026.4(b)(2) and its commentary.151 As 

discussed in the proposal, the Board 

and the CFPB have amended 

§ 1026.4(b)(2) and its commentary over 

time.152

The CFPB proposed to amend this 

current example of a finance charge as 

described in § 1026.4(b)(2) and 

comment 4(b)(2)–1 to set forth a 

different rule for when charges imposed 

on a covered asset account, as that term 

is defined in § 1026.62(b)(2), would be 

finance charges. The CFPB also 

proposed to add § 1026.4(b)(12) to 

provide examples of finance charges 

with regard to a covered asset account, 

as defined in proposed § 1026.62(b)(2). 

These proposed changes specified 

which overdraft transactions include a 

finance charge and, therefore, may be 

subject to the requirements of TILA and 

Regulation Z. 

Proposed § 1026.4(b)(12)(i) described 

as an example of a finance charge any 

service, transaction, activity, or carrying 

charges imposed on the separate credit 

account required by § 1026.62(c), which 

is also a covered overdraft credit 

account. Proposed § 1026.4(b)(12)(ii) 

described as an example of a finance 

charge any service, transaction, activity, 

or carrying charges imposed on the 

covered asset account to the extent the 

charge exceeds a comparable charge 

imposed on a checking or other 

transaction account that does not have 

overdraft credit. Proposed 

§ 1026.4(b)(12)(iii) then described 

certain charges imposed on a checking 

or other transaction account that does 

not have overdraft credit that are not 

comparable to charges imposed on a 

covered asset account, which, by 

definition (see § 1026.62(b)(2)), does 

have overdraft credit tied to it and is 

provided by a very large financial 

institution. As discussed in the 

proposal, the proposed limitations in 

§ 1026.4(b)(12)(iii)(A) through (E) would 

prohibit a very large financial 

institution from comparing charges that 

are not comparable cash transactions or 

from using comparisons in a way that 

may lead to evasion of the requirements 

of Regulation Z. These proposed 

changes would broaden the example of 

a ‘‘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. For 

the reasons discussed below, the CFPB 

is finalizing these proposed revisions 

with certain clarifying changes. 

Finance Charges Generally 

Several commenters, including 

industry trade groups, objected to the 

CFPB’s proposed changes to 

§ 1026.4(b)(2) and (b)(12), while other 

commenters, including consumer 

advocate and academic commenters, 

supported the changes. Most 

commenters did not address the specific 

language of the proposed changes to 

§ 1026.4(b)(2) and (b)(12), focusing 

instead on broader concerns. One 

consumer advocate commenter 

supported the language of the proposed 

changes and suggested certain changes, 

including adding additional 

commentary, an additional example, 

and an additional comment related to 

eliminating the participation fee 

exception for covered asset accounts. 

Commenters opposing the proposed 

changes argued that the CFPB’s proposal 

misclassifies overdraft as ‘‘credit’’ and, 

because overdraft is not credit, overdraft 

charges are not a ‘‘finance charge’’ 

under TILA. As discussed above, 

arguments that overdraft is not credit 

under TILA are not supported by the 

statute itself; TILA defines ‘‘credit’’ 

broadly and does not exclude overdraft. 

Industry commenters opposing the 

proposed changes also argued that, even 

if overdraft is ‘‘credit,’’ overdraft charges 

are not incident to or a condition of the 

extension of credit and therefore do not 

meet the definition of a ‘‘finance 

charge.’’ These commenters argued that 

overdraft charges are service charges 

applied, for example, for keeping an 

overdrawn account open or 

compensating for the failure to timely 

remedy the overdraft. Commenters 

pointed to case law that they believe 

supports this characterization of 

overdraft charges. At least one industry 

commenter further argued that the CFPB 

lacks the authority under TILA to 

redefine covered overdraft fees as 

finance charges. 

Commenters supporting the proposal 

argued that the term ‘‘finance charge’’ is 

broadly defined and contains no 

limitation for overdraft charges in its 

definition. Members of Congress 

commented that the proposed rule is 

consistent with and helps fulfill TILA’s 

purpose by ensuring that consumers 

have critical protections when offered 

credit. A consumer advocate commenter 

stated that overdraft charges imposed on 

a credit account are clearly incident to 

credit, and that charges for credit 

imposed on other asset accounts are part 

of the cost of the credit and incidental 

to that credit, even if there are 

comparable charges in another noncredit context. A consumer advocate 

commenter provided specific 

suggestions for amending existing 

comments 4(b)(2)–1 and 4(b)(2)–1.ii. 

With respect to commenters stating 

that an overdraft charge is not a 

‘‘finance charge’’ under TILA and that 

TILA does not confer authority upon the 

CFPB to regulate overdraft, such 

assertions are inconsistent with 

TILA.153 The definition of ‘‘finance 

charge’’ under TILA section 106(a) and 

in Regulation Z under § 1026.4(a) is very 

broad and, unless specifically excluded 

by the regulation, includes amounts 

imposed directly or indirectly by the 


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154 79 FR 77102, 77117–20 (Dec. 23, 2014). 155 34 FR 2002 (Feb. 11, 1969). See § 1026.4(b)(2) 

and (c)(3). 156 79 FR 77102, 77119 (Dec. 23, 2014). 157Public Law 96–221, sec. 601, 94 Stat. 132; 45 

FR 80648 (Dec. 5, 1980). 158 45 FR 80648, 80657 (Dec. 5, 1980). The Board 

ultimately made only a few minor editorial changes 

to the exclusion, thus preserving the exemption 

unless there is an agreement in writing to pay items 

and impose a charge. 46 FR 20848, 20855 (Apr. 7, 

1981). 

159 67 FR 72618, 72620 (Dec. 6, 2002). 

160 Id. The Board did not modify the Regulation 

Z exemptions when it issued final rules in 2003, 

instead stating in preamble 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). 

creditor as an incident to or condition 

of the extension of credit. 

Moreover, the CFPB discussed the 

regulatory history of the overdraft 

exception extensively in the prepaid 

rule proposal.154 As summarized in that 

proposal, although Congress did not 

exempt overdraft services or similar 

programs offered in connection with 

deposit accounts from TILA, the Board 

in issuing Regulation Z in 1969 carved 

financial institutions’ ‘‘bounceprotection’’ programs out of the new 

regulation.155 The Board revisited the 

exception of bounce protection 

programs from Regulation Z over the 

years, including signaling concern with 

overdraft services in a number of 

rulemaking actions.156 In particular, the 

Board revisited the exception of bounce 

protection programs from Regulation Z 

in 1981, in a rulemaking in which the 

Board implemented the Truth in 

Lending Simplification and Reform 

Act.157 In the related proposal, the 

Board considered adjusting its overdraft 

exception to apply only to 

‘‘inadvertent’’ overdrafts because, as the 

Board stated, ‘‘a charge imposed for 

honoring an instrument under any 

agreement between the institution and 

the consumer is a charge imposed for a 

credit extension and thus fits the 

general definition of a finance charge, 

whether or not the charge and the 

honoring of the check are reflected in a 

written agreement. The characterization 

of the charge will thus depend on 

whether ‘credit’ has been extended, 

within the meaning of the 

regulation.’’ 158 Further, in a 2002 

proposal to amend Regulation Z with 

regard to the status of certain credit 

card-related fees and other issues, the 

Board noted that some overdraft 

services may not be all that different 

from overdraft lines of credit, which 

typically include a written agreement, 

and requested comment on whether and 

how Regulation Z should be applied to 

banks’ bounce-protection services.159

That proposal cited to Regulation Z’s 

exclusion of a charge for overdraft 

unless the payment of such items and 

the imposition of the charge are 

previously agreed upon in writing and 

noted that ‘‘[f]ees imposed in 

connection with ‘bounce protection’ 

services may or may not meet the 

definition of a finance charge.’’ 160 This 

regulatory history indicates that, but for 

the exception established under 

Regulation Z, a charge for overdraft 

would fall within the definition of a 

‘‘finance charge.’’ 

Some comments stated that an 

overdraft charge is not a finance charge 

because it is a fee for providing a service 

related to the account and is imposed 

regardless of whether credit is extended 

such that it is not a fee incident to or 

a condition of the extension of credit. 

The CFPB notes, however, that this 

argument appears inconsistent with 

current market practices, which do often 

distinguish between overdraft fees and 

other fees. Financial institutions subject 

to this rule generally make clear in their 

account agreements that overdraft 

coverage is a separate feature with fees 

that often differ from those charged 

when an overdrawing transaction is 

declined. Such financial institutions 

also often do not assess NSF fees on 

declined card transactions, and many 

such financial institutions are no longer 

charging NSF fees on any types of 

transactions. These considerations 

highlight the fact that the overdraft fee 

is incident to or a condition of the 

extension of credit, even if the financial 

institution charges an NSF fee, 

characterizes the fee as a bank account 

service fee, or charges the fee for 

keeping an overdraft account open or 

because an overdraft is not repaid 

within a certain period of time. 

For these reasons, CFPB is finalizing 

the proposed change to § 1026.4(b)(2) 

and corresponding changes to comment 

4(b)(2)–1 to set forth a different rule for 

when charges imposed on a covered 

asset account, as that term is defined in 

§ 1026.62, are finance charges. As 

discussed below, the CFPB is also 

finalizing § 1026.4(b)(12) to provide an 

example of a finance charge with regard 

to a covered asset account. 

The CFPB declines to incorporate the 

commenter’s suggestions on 

commentary 4(b)(2)–1 because it 

believes that finalizing commentary 

4(b)(2)–1 as proposed makes clear that 

charges applied to covered asset 

accounts are evaluated under 

§ 1026.4(b)(12). The CFPB declines to 

incorporate the commenter’s suggested 

revisions on commentary 4(b)(2)–1.ii. 

While the CFPB recognizes that 

retaining the existing language regarding 

‘‘paying or returning’’ an item on a 

similar account without a credit feature 

could be read to imply that a 

comparable account with overdraft is 

nevertheless an account without a credit 

feature, the discussion of ‘‘overdraft 

credit’’ above in part IV.C.1 notes the 

distinction between incidental credit 

and a credit feature. 

Example of a Finance Charge for the 

Separate Credit Account 

With regard to a covered asset 

account, proposed § 1026.4(b)(12)(i) 

described as an example of a finance 

charge any service, transaction, activity, 

or carrying charge imposed on the 

separate credit account required by 

§ 1026.62(c). Proposed section 

1026.62(c) stated that a very large 

financial institution shall structure 

covered overdraft credit as a separate 

credit account and stated that the 

separate credit account is a covered 

overdraft credit account. 

An industry commenter objected to 

the lack of language in proposed 

§ 1026.4(b)(12)(i) to account for a 

comparable cash transaction or to 

provide for a comparison to a charge 

imposed on a checking or other 

transaction account that does not have 

overdraft credit. This commenter argued 

that the lack of such language 

contravenes the specific exclusion in 

TILA section 1605(a) for charges of a 

type payable in a comparable cash 

transaction, and stated that these 

exclusions from the finance charge 

definition are mandated by TILA’s 

provisions and tied to TILA’s purpose. 

A consumer advocate commenter 

supported § 1026.4(b)(12)(i) because the 

service, transaction, activity or carrying 

charges identified in that section are 

imposed on a credit account and thus 

are clearly incident to credit. This 

commenter noted that this is true under 

the law today and would remain true if 

banks restructure their overdraft 

services as lines of credit to comply 

with the CFPB’s rule. This commenter 

also agreed with the proposal’s rationale 

that it would not make sense to compare 

fees on a credit account to those on a 

noncredit account. 

Regarding the commenter’s argument 

that the CFPB erred by not providing for 

a comparison to a charge imposed on a 

checking or other transaction account 

that does not have overdraft credit, final 

§ 1026.4(b)(12)(i) does not change 

existing law. Existing § 1026.4(b)(2) 

provides that examples of finance 

charges include service, transaction, 

activity, and carrying charges imposed 

on a credit account. Onto this example, 

the Board added a partial exception in 

§ 1026.4(b)(2) stating that any charge 


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161Existing comment 4(b)(2)–1 similarly provides 

that a checking or transaction account charge 

imposed in connection with a credit feature is a 

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

extent the charge exceeds the charge for a similar 

account without a credit feature. 

imposed on a checking or other 

transaction account (emphasis added), 

such as a service or transaction account 

charge, is only a finance charge to the 

extent that the charge exceeds the 

charge for a similar asset account 

without a credit feature.161 Under 

existing § 1026.4(b)(2), service, 

transaction, activity, and carrying 

charges imposed on an overdraft line of 

credit account (as opposed to the 

checking or other transaction account to 

which the credit line is tied) are 

generally finance charges. This is true 

whether or not the charge exceeds the 

charge for a similar asset account 

without a credit feature. The CFPB’s 

rule does not change this treatment of 

fees assessed on overdraft lines of credit 

or credit card accounts, which many 

financial institutions currently provide, 

and which are, in general, currently 

covered by Regulation Z. Similarly, the 

separate credit account required by 

§ 1026.62(c) is not a checking or other 

transaction account that would qualify 

for the partial exception. The CFPB is 

also, as described in the proposal, 

concerned that adding such a 

comparison might lead to potential 

evasion of the rule. For these reasons, 

proposed § 1026.4(b)(12)(i) is consistent 

with existing § 1026.4(b)(2) and the 

CFPB is finalizing § 1026.4(b)(12)(i) as 

proposed. 

Example of a Finance Charge for the 

Covered Asset Account 

Proposed § 1026.4(b)(12)(ii) largely 

echoed existing § 1026.4(b)(2) by 

providing that any service, transaction, 

activity, or carrying charge imposed on 

a 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 overdraft 

credit. Commenters, in general, did not 

focus specifically on proposed 

§ 1026.4(b)(12)(ii), instead focusing their 

criticism or support on 

§ 1026.4(b)(12)(iii) (discussed below). 

The CFPB is finalizing 

§ 1026.4(b)(12)(ii) largely as proposed 

with minor stylistic changes to match 

existing § 1026.4(b)(2). 

Proposed § 1026.4(b)(12)(iii) 

described five specific types of charges 

imposed on a checking or other 

transaction account without overdraft 

credit that are not comparable to charges 

imposed on a covered asset account. 

Industry commenters objected to 

§ 1026.4(b)(12)(iii), focusing most 

heavily on the inability to use a 

nonsufficient funds (NSF) fee as a 

comparable charge to reduce the extent 

to which an overdraft fee is a finance 

charge. These commenters argued that 

eliminating this exception would reduce 

the availability of covered overdraft 

credit, and such reduction would 

disadvantage consumers, who would 

face the same or higher fees without the 

benefit of a paid transaction. At least 

one industry commenter also argued 

that precluding this comparison 

contradicts TILA’s goal of requiring 

disclosure of fees that are payable by 

credit customers but not by cash 

customers. This same commenter 

argued that both an overdraft charge and 

an NSF fee are imposed upon an 

overdrawn account and serve many of 

the same functions, citing to court cases 

and agency publications grouping 

overdraft and NSF fees in the same 

category. This commenter argued that 

nothing in TILA section 1605(a) 

precludes the ‘‘cash transaction’’ 

description from applying to a payment 

for services and that the concept of a 

‘‘cash transaction’’ relates to the method 

of payment, rather than what is 

provided in return. 

A consumer advocate commenter 

supported this proposed provision, 

arguing that the comparable cash 

transaction exception has been used to 

hide or exclude amounts even where no 

comparable transaction actually exists; 

therefore, the proposed restrictions in 

§ 1026.4(b)(12)(iii) would help to 

prevent evasions. This commenter also 

argued that returning an item unpaid is 

not a comparable cash transaction to 

paying it as an overdraft as one 

transaction is credit, with the fee being 

the cost of that credit, and the other 

transaction is not credit, with the fee 

serving a different purpose. This 

commenter supported the limitations 

proposed in § 1026.4(b)(12)(iii), arguing 

that the charges listed in (A) through (D) 

are not associated with cash 

transactions. This commenter also 

supported the limitation on using a 

charge for transferring funds into the 

checking or other transaction account 

from any other asset account (such as a 

savings account), arguing that a charge 

for overdraft credit reflects the cost of 

that credit and that the full amount of 

that fee should be viewed as a finance 

charge, noting that this policy is already 

reflected in existing comment 4(a)–4 

and would reflect the reality that the 

consumers who incur the most overdraft 

fees are unlikely to have significant 

linked savings or other asset accounts 

that can be used to cover overdrafts. 

This commenter also recommended 

adding commentary interpreting 

§ 1026.4(b)(12) for clarity, including a 

comment stating that transfer fees 

imposed on any credit account, whether 

an overdraft line of credit or traditional 

credit card, are a finance charge and a 

comment comparing the monthly 

account fees of two asset accounts that 

differ in whether they have a tied credit 

feature or not, such that the difference 

in the asset accounts’ monthly fees is a 

finance charge. 

As to the commenter’s request for 

additional commentary, the purpose of 

§ 1026.4(b)(12)(iii) is to clarify which 

types of transactions are not comparable 

to an overdraft charge for purposes of 

the comparison calculation described in 

§ 1026.4(b)(12)(ii). As discussed further 

below, specific charges are identified in 

§ 1026.4(b)(12)(iii) for the purpose of 

prohibiting comparison for purposes of 

§ 1026.4(b)(12)(ii); § 1026.4(b)(12)(iii) 

does not address whether or not such 

fees are themselves ‘‘finance charges.’’ 

Thus, the CFPB declines to add 

additional commentary. 

After considering the comments, the 

CFPB is finalizing § 1026.4(b)(12)(iii) 

largely as proposed in order to prohibit 

very large financial institutions from 

comparing overdraft charges to charges 

that are not comparable cash 

transactions, to prevent using such 

comparisons in a way that may lead to 

evasion of the requirements of 

Regulation Z, and to ensure that the full 

cost of credit is more accurately 

disclosed. Accordingly, 

§ 1026.4(b)(12)(iii) includes the 

limitation in proposed 

§ 1026.4(b)(12)(iii)(B) and (C) because 

fees for declining to authorize or pay a 

transaction or for returning a transaction 

unpaid—often referred to as NSF fees— 

are not comparable to overdraft charges. 

As discussed in the proposal, an NSF 

fee is assessed when a transaction is 

declined while an overdraft charge is 

assessed when a transaction is paid and 

the institution lends the consumer 

money to pay that transaction. As to 

commenters’ concerns that proposed 

§ 1026.4(b)(12)(iii) would have 

designated NSF fees themselves as 

examples of ‘‘finance charges,’’ final 

§ 1026.4(b)(12)(iii) does not do so. The 

proposed regulatory text was intended 

to prohibit the use of an NSF fee to 

offset an overdraft charge. Final 

§ 1026.4(b)(12)(iii) prohibits that same 

comparison but adds stylistic changes to 

clarify that the types of transactions 

identified in § 1026.4(b)(12)(iii)(A) 

through (E) are itemized solely for the 

purpose of clarifying that they cannot be 

compared to charges imposed when 

overdraft credit is extended. Nothing in 


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final § 1026.4(b)(12)(iii)(A) through (E) 

changes or modifies whether or not 

these five types of transactions are 

examples of finance charges. 

Specifically, final § 1026.4(b)(12)(iii) 

does not comment on whether or not an 

NSF fee would be a finance charge. 

For the reasons discussed above, the 

CFPB is finalizing § 1026.4(b)(12)(ii) and 

(iii) largely as proposed. The CFPB 

makes two additional clarifying changes 

to the regulatory text of 

§ 1026.4(b)(12)(iii). First, the final rule 

strikes ‘‘covered’’ from ‘‘covered 

overdraft credit’’ in § 1026.4 (b)(12)(iii). 

Proposed § 1026.4(b)(12)(ii) referred to a 

checking or other transaction account 

that does not have overdraft credit; 

proposed § 1026.4(b)(12)(iii) referred to 

a checking or other transaction account 

that does not have covered overdraft 

credit. Thus, changing ‘‘covered 

overdraft credit’’ to ‘‘overdraft credit’’ in 

final § 1026.4(b)(12)(iii) resolves what 

could have been read as a conflict 

between the regulatory text of final 

§ 1026.4(b)(12)(ii) and final 

§ 1026.4(b)(12)(iii) to which this section 

applies. Second, the final regulatory text 

of § 1026.4(b)(12)(iii) adds descriptive 

language to make clear that the 

comparison at issue is between the 

charge or combination of charges, 

including a per transaction fee, imposed 

on a covered asset account when 

overdraft credit is extended and the five 

types of charges itemized in final 

§ 1026.4(b)(12)(iii)(A) through (E). 

Accordingly, the CFPB finalizes 

§ 1026.4(b)(12)(iii) with these clarifying 

changes. 

2. The § 1026.4(c)(3) Finance Charge 

Exception 

The CFPB’s Proposal 

Existing § 1026.4(c)(3) provides that 

charges imposed by a financial 

institution for paying items that 

overdraw an account are not finance 

charges unless the payment of such 

items and the imposition of the charge 

were previously agreed upon in writing. 

The CFPB proposed to change this 

exception to the finance charge 

definition by adding a new sentence to 

the end of § 1026.4(c)(3) that provided 

that the paragraph does not apply to 

above breakeven overdraft credit as 

defined in proposed § 1026.62. In 

addition to amending § 1026.4(c)(3), the 

CFPB also proposed to add comment 

4(c)(3)–3 to 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. For the reasons 

discussed below, the CFPB is finalizing 

these changes as proposed and is 

revising comment 4(c)(3)–1 to clarify 

that it does not apply to above 

breakeven overdraft credit as defined in 

§ 1026.62(b)(1). 

Comments Received 

Many commenters criticized the 

existing § 1026.4(c)(3) exception, stating 

that it does not adequately protect 

consumers. Several of these commenters 

noted that financial institutions 

frequently offer overdraft services under 

the existing § 1026.4(c)(3) exception at a 

high cost relative to other credit options. 

Among these commenters, several 

observed that, in the aggregate, lowincome and minority consumers 

typically pay higher fees for noncovered overdraft credit offered through 

the existing § 1026.4(c)(3) exception. At 

least one of these commenters also 

explained that the existing § 1026.4(c)(3) 

exception helps financial institutions 

disguise the true cost of deposit 

accounts by allowing them to generate 

substantial fee revenue, which they use 

to drive profits and to offer free or lowcost banking services to consumers who 

are relatively more advantaged. 

Commenters who criticized the 

existing § 1026.4(c)(3) exception 

generally expressed support for the 

proposed changes to the § 1026.4(c)(3) 

exception. Many of these commenters 

indicated that the proposed changes 

would advance one of TILA’s 

fundamental purposes–promoting the 

informed use of credit. Specifically, 

these commenters agreed with the 

proposal’s preliminary determination 

that the proposed changes would ensure 

that, when consumers utilized above 

breakeven overdraft credit, they would 

receive important Regulation Z 

protections, such as account-opening 

disclosures, credit card protections, and 

ability to repay assessments. These 

commenters further noted that, by 

providing consumers with these 

Regulation Z protections, the proposed 

changes to the § 1026.4(c)(3) exception 

not only would help consumers 

recognize that they are entering into a 

credit transaction when utilizing above 

breakeven overdraft credit, but also 

would help consumers compare the cost 

of above breakeven overdraft credit with 

other credit options more effectively. 

One academic commenter supported 

requiring TILA disclosures for overdraft 

products but also emphasized the 

importance of simplicity and clarity in 

such disclosures. 

Many of the proponents of the 

proposed changes to the § 1026.4(c)(3) 

exception also stated that it made sense 

for the proposed rule to allow very large 

financial institutions to continue to 

provide non-covered overdraft credit at 

or below a very large financial 

institution’s breakeven price. These 

commenters noted that limiting the 

application of the § 1026.4(c)(3) 

exception to non-covered overdraft 

credit offered at or below a very large 

financial institution’s breakeven price, 

as proposed, would return the 

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

courtesy purpose and would reduce fee 

burdens on consumers, especially lowincome and minority consumers. They 

also explained that returning the 

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

courtesy purpose would realign the 

incentives of very large financial 

institutions so that they would be 

deterred from adopting practices that 

push consumers into overdrafting and 

incurring high fees. Further, they stated 

that it was unnecessary to eliminate the 

§ 1026.4(c)(3) exception completely 

because consumers typically would 

benefit from receiving non-covered 

overdraft credit provided at or below 

cost, making TILA protections less 

critical. 

The same commenters also noted that 

the proposed changes to the 

§ 1026.4(c)(3) exception would require 

very large financial institutions to better 

disclose the terms of above breakeven 

overdraft credit. As a result of these 

proposed changes, they anticipated that 

the proposal would help many 

consumers avoid surprise overdrafts. 

Other commenters opposed the 

proposed changes to the § 1026.4(c)(3) 

exception. Many of these commenters 

stated that very large financial 

institutions should be allowed to earn a 

profit on non-covered overdraft without 

abiding by the requirements of TILA 

and Regulation Z. These commenters 

also expressed concern that financial 

institutions could not sustainably offer 

overdraft credit at or below their 

breakeven price and would not incur 

the operational costs or take the 

compliance and litigation risks 

necessary to offer above breakeven 

overdraft in compliance with Regulation 

Z. 

Commenters opposed to the proposed 

changes to the § 1026.4(c)(3) exception 

also questioned the need for the 

proposed changes. Specifically, these 

commenters contended that existing 

disclosures and opt-in requirements 

adequately inform consumers of the 

terms for non-covered overdraft 

services. At least one of these 

commenters further stated that the CFPB 

inadequately explained why consumers 

are currently unable to compare the cost 

and terms of overdraft credit with other 

kinds of credit. Another commenter 

questioned why the CFPB would not 

consider the existing disclosures for 


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106792 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

162 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 (2003) 

(Cocheo 2003). 

163See 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). 

164 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.’’). 

overdraft services provided under 

Regulations DD and E effective in 

helping consumers understand above 

breakeven overdraft credit. This 

commenter further questioned why the 

CFPB finds that Regulation Z 

disclosures would provide consumers a 

better understanding of these services 

and would help them make more 

informed decisions when using such 

services. 

Commenters opposed to the proposed 

changes to the § 1026.4(c)(3) exception 

also stated that the CFPB’s proposal to 

change the § 1026.4(c)(3) exception was 

arbitrary and capricious. At least one of 

these commenters stated that the CFPB’s 

proposal to change the § 1026.4(c)(3) 

exception was arbitrary and capricious 

because the changes it proposed would 

apply only to above breakeven overdraft 

credit even though the proposal’s stated 

consumer protection goals would apply 

equally to non-covered overdraft credit. 

At least one other commenter argued 

that the CFPB arbitrarily and 

capriciously relied upon the promotion 

of the informed use of credit to apply 

TILA and Regulation Z to overdraft fees. 

This commenter stated that the CFPB 

provided inadequate evidence to 

support its statement that applying 

consumer credit protections to above 

breakeven overdraft credit would help 

consumers make informed decisions 

about such credit. In particular, the 

commenter questioned the volume of 

evidence marshalled by CFPB. The 

commenter also stated that the CFPB 

should consider other reasons 

consumers may utilize non-covered 

overdraft credit rather than alternative 

credit products, including timeliness, 

ease of use, lack of access to 

alternatives, or cost. 

A few commenters asked the CFPB to 

amend its proposal to change the 

§ 1026.4(c)(3) exception. One 

commenter recommended that the CFPB 

amend comment 4(c)(3)–1 to specify 

that the comment does not apply to 

above breakeven overdraft credit offered 

in connection with a covered asset 

account as defined in § 1026.62(b)(2). 

Another commenter stated that the 

CFPB should eliminate the 

§ 1026.4(c)(3) exception rather than 

attempt to amend it. This commenter 

provided several justifications for this 

viewpoint, including that the exception 

originally applied to checks, but that 

checks are used less frequently today, 

and that overdraft fees put a significant 

strain on low-income households while 

providing outsized profits to financial 

institutions. 

Final Rule 

For the reasons stated in the proposal 

and below, the CFPB finalizes 

§ 1026.4(c)(3) and comment 4(c)(3)–3 as 

proposed. Additionally, as discussed 

below, the CFPB revises comment 

4(c)(3)–1 to clarify that it does not apply 

to above breakeven overdraft credit as 

defined in § 1026.62(b)(1). 

As further discussed below, the CFPB 

is finalizing § 1026.4(c)(3) for several 

independent reasons, consistent with 

the proposal. First, amending the 

§ 1026.4(c)(3) exception so that it no 

longer applies to above breakeven 

overdraft credit (the § 1026.4(c)(3) 

amendment) returns 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. Additionally, the 

§ 1026.4(c)(3) amendment furthers 

TILA’s purpose of promoting the 

informed use of credit by ensuring that 

above breakeven overdraft credit is 

disclosed as a credit product and 

facilitating comparison shopping across 

credit products. Moreover, applying the 

Regulation Z regulatory framework to 

above breakeven overdraft credit 

products will benefit consumers by 

applying the regulation’s existing 

substantive protections to such credit 

products, consistent with TILA’s 

purpose of protecting consumers against 

inaccurate and unfair credit billing and 

credit card practices. The § 1026.4(c)(3) 

amendment also reflects, in part, an 

effort to balance the reliance interests of 

very large financial institutions and 

consumers against these other 

considerations. 

Adapting the Courtesy Exception To Fit 

Within the Modern Payments System 

Commenters opposed to the revision 

to the § 1026.4(c)(3) exception stated 

that the rationales for the amendment 

provided in the proposed rule— 

protecting consumers against inaccurate 

and unfair credit practices and 

promoting the informed use of credit— 

were arbitrary and capricious. They 

stated that this was because the 

consumer protection goals justifying the 

amendment apply equally to both above 

breakeven overdraft credit and noncovered overdraft credit provided at or 

below breakeven pricing, and the 

amendment applies only to at or below 

breakeven overdraft credit. The CFPB 

acknowledges that Regulation Z 

disclosures and protections would be 

helpful to consumers both in 

circumstances where overdraft fees are 

profit-generating and in circumstances 

where they are not. However, consistent 

with the Board’s original reasoning, the 

CFPB’s revision to the exception is 

based on the countervailing 

considerations discussed herein, 

including that consumers receive a 

benefit from the availability of this 

service if it is offered as a courtesy and 

that very large financial institutions are 

more likely to offer courtesy overdraft 

when they are able to recover the costs 

of providing that service. In light of 

these considerations, the revision to the 

§ 1026.4(c)(3) exception allows very 

large financial institutions to provide 

non-covered overdraft without being 

subject to Regulation Z requirements. 

As explained in the proposal, the 

existing § 1026.4(c)(3) exception no 

longer reflects its original courtesy 

purpose. 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.162 However, 

instead of returning the check unpaid, a 

financial institution, in its discretion, 

might have paid the check into overdraft 

as a courtesy.163

When it issued Regulation Z in 1969, 

the Board created a limited exception 

for this longstanding practice.164

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 


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165 34 FR 2002, 2004 (Feb. 11, 1969). 166 70 FR 29582, 29582 n.1 (May 24, 2005). 167See 12 CFR 1026.2(a)(17)(i). 

168 42 FR 22360, 22362 (May 3, 1977). 

169 46 FR 20848, 20855 (Apr. 7, 1981). 

170 Id. 

171 Id. 

172 Id. 

173 Id. 

174The 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 existing version of 

Regulation Z. 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. 

175 74 FR 5212 (Jan. 29, 2009); 81 FR 83934, 

83950–51 (Nov. 22, 2016). 

176Stephen Quinn & William Roberds, The 

Evolution of the Check as a Means of Payment: A 

Historical Survey, 93 Fed. Rsrv. Bank Atlanta Econ. 

Rev. 1, at 21 (2008). 

177CFPB 2014 Data Point at 17. 

178 81 FR 83934, 83950–51 (Nov. 22, 2016). 

179CFPB 2014 Data Point at 15 tbl.4c. 

180 Id. 

181 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, 

honor a check which inadvertently overdraws that 

account.’’). 

182 74 FR 5212, 5217 (Jan. 29, 2009). 

183See CFPB October 2023 Data Spotlight. 

184This 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. 

185See 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. 

upon in writing.’’ 165 A bank providing 

discretionary, check-centric overdraft 

(also known as ‘‘bounce-check 

protection’’ or ‘‘courtesy overdraft 

protection’’ services, as noted in later 

Federal Register publications) 166 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).167 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.168

In 1981, the Board amended 

Regulation Z to, among other things, 

make ‘‘a few minor editorial changes’’ to 

the § 226.4(d) exception.169 Specifically, 

the Board changed the term ‘‘bank’’ to 

‘‘financial institution’’ and the term 

‘‘checks’’ to ‘‘items.’’ 170 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.’’ 171 Additionally, the Board 

renumbered § 226.4(d) to 

§ 226.4(c)(3).172 By making these ‘‘minor 

editorial changes,’’ the Board stated that 

‘‘[n]o substantive change is intended 

. . . .’’ 173 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 

ad hoc, fee-based, check-centric, 

courtesy overdraft services without 

having to comply with the requirements 

of TILA and Regulation Z.174

Despite the fact that neither the Board 

nor the CFPB has changed the purpose 

of the § 1026.4(c)(3) exception, the 

market for non-covered overdraft credit 

has changed in important ways—many 

financial institutions have automated 

their non-covered overdraft programs 

and expanded them to cover non-check 

transactions, while also adjusting their 

account pricing structure to more 

heavily emphasize overdraft fees.175

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,176 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.177 This shift 

away from check transactions is 

significant because, as financial 

institutions have automated their noncovered overdraft programs and 

expanded them to cover non-check 

transactions, the sheer volume of 

overdraft transactions and associated 

fees has increased.178 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.179 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).180 In other words, for many 

consumers who use debit cards 

frequently, non-covered overdraft credit 

services are no longer provided as an 

occasional accommodation.181

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,182

and nearly two-thirds of banks with 

over $10 billion in assets have 

eliminated NSF fees 183).184 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.185 This shift 

represents a significant departure from 

the historical courtesy model, which 

provided an accommodation to 

consumers for the occasional, 

inadvertent overdraft. 

The CFPB’s amendment to the 

§ 1026.4(c)(3) exception reestablishes 

the original courtesy purpose of the 

§ 1026.4(c)(3) exception by providing 

the exception only for overdraft credit 

priced at or below a very large financial 

institution’s breakeven point. 

Promoting the Informed Use of Credit 

Commenters opposed to the CFPB’s 

amendment to the § 1026.4(c)(3) 

exception contended that existing 

disclosures and opt-in requirements 

adequately inform consumers of the 

terms for non-covered overdraft 

services. 

As an initial matter, the CFPB is 

amending the § 1026.4(c)(3) exception to 

return the regulatory requirements 

closer to TILA’s original effect. The 

CFPB is following Congress’s judgment 

that standardized disclosures across 


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106794 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

186 89 FR 13852, 13868 n.165 (Feb. 23, 2024); 

CFPB 2013 White Paper at 52; CFPB 2014 Data 

Point at 5. 

187Pew Charitable Tr., Overdraft Does Not Meet 

the Needs of Most Consumers, at 9 (Dec. 2017), 

https://www.pewtrusts.org/-/media/assets/2017/12/ 

cb_overdraft_does_not_meet_the_needs_of_most_

consumers.pdf (Pew 2017 Chartbook). The 

proposed rule referenced this study as evidence that 

consumer understanding of the Regulation E opt-in 

right is low. See 89 FR 13852, 13892 n.255 (Feb. 

23, 2024). 

188CFPB 2014 Data Point at 5. 

189 89 FR 13852, 13869 n.166 (Feb. 23, 2024). 

190 Id. at 13868. 

different types of credit help consumers 

better comparison shop. 

As the CFPB explained in the 

proposed rule, most non-covered 

overdraft credit is subject to Regulations 

DD and E. Although Regulations DD and 

E require certain disclosures for noncovered overdraft credit, neither 

regulation requires that such noncovered 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. Unlike the 

disclosures required under Regulations 

DD and E, the disclosures required by 

Regulation Z are designed to set forth 

contractual terms for credit products 

clearly. Regulation Z would also apply 

additional requirements under subparts 

B and G, including periodic statement 

requirements and advertising rules 

meant to help consumers better 

understand credit terms, monitor their 

use of the product, and trace how their 

funds are being used. 

Applying the Regulation Z regulatory 

framework to above breakeven overdraft 

credit benefits 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 benefits consumers by 

helping them understand that they are 

entering into a contract for a credit 

product provided by a creditor. 

Additionally, disclosing above 

breakeven overdraft credit services 

under the Regulation Z regulatory 

framework also promotes the informed 

use of credit because requiring very 

large financial institutions to present the 

credit terms for above breakeven 

overdraft credit in the same form that 

creditors present the credit terms of 

other credit products will allow 

consumers to compare the cost of such 

credit with the cost of alternative credit 

products. For example, the cost of noncovered overdraft credit is typically 

disclosed as a fee, and no annual 

percentage rate disclosure is required. In 

contrast, Regulation Z requires 

disclosure of periodic rates as annual 

percentage rates, which will aid 

consumers in comparing the cost of 

covered overdraft credit to other credit 

products. 

At least one commenter also 

contended that the CFPB did not 

adequately explain how its proposed 

amendment would allow consumers to 

compare the cost and terms of overdraft 

credit with other kinds of credit better 

than existing requirements. In 

particular, this commenter stated that 

the CFPB did not cite sufficient 

evidence to support its finding that 

consumers have difficulty comparing 

non-covered overdraft credit services 

with available alternatives. The 

commenter also asserted that the CFPB 

failed to consider other reasons why 

consumers may utilize non-covered 

overdraft credit over alternative sources 

of liquidity, such as timeliness, ease of 

use, lack of access to alternatives, and 

cost. 

As an initial matter, the reports cited 

in the proposed rule to support the 

finding that many consumers have 

difficulty comparing non-covered 

overdraft credit services with available 

alternatives are bolstered by other 

research.186 For example, a survey 

conducted by the Pew Charitable Trust 

found that 42 percent of the overdrafters 

they polled had sufficient credit 

available on a credit card to cover an 

emergency expense of $400.187 This 

finding is significant because, according 

to a CFPB 2014 report, the median 

amount of overdraft credit extended per 

non-covered overdraft transaction was 

$50 across all transaction types 188 and 

was only $25.50 for debit card 

transactions,189 well within the amount 

of credit card credit available to many 

overdrafters polled by Pew. Therefore, 

as explained in the proposal, a 

significant number of consumers 

continue to use non-covered overdraft 

credit services despite the availability of 

alternative credit that is generally much 

cheaper than overdraft credit.190

As the commenter noted, consumers 

who have access to cheaper, alternative 

sources of liquidity still may opt to use 

non-covered overdraft credit services 

despite the higher cost if, for example, 

they believe these services are more 

timely and easier to use. (The 

commenter’s other two theories for why 

consumers might use non-covered 

overdraft—lack of access to alternatives 

and cost—do not apply to consumers 

who have access to lower cost liquidity.) 

However, other evidence cited in the 

proposal indicates that many consumers 

often do not understand the cost and 

terms of non-covered overdraft. For 

example, the proposed rule noted that a 

significant number of commenters 

responding to the CFPB’s 2022 request 

for information (2022 RFI) stated that 

overdraft fees were unclear or 

confusing. The proposed rule further 

noted that the concerns raised by 

commenters responding to the 2022 RFI 

were generally consistent with the 

concerns reflected in consumer 

complaints about overdraft fees 

submitted to the CFPB. 

Applying Substantive Protections 

Applying the Regulation Z regulatory 

framework to above breakeven overdraft 

credit services also benefits consumers 

by applying the regulation’s existing 

substantive protections to such credit 

services. For example, the rule applies 

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 accessible via a hybrid 

debit-credit card prohibits very large 

financial institutions from immediately 

taking funds from any incoming deposit 

in repayment of the consumer’s 

overdraft balance, requires very large 

financial institutions to establish due 

dates on the same day of each billing 

cycle, and requires very large financial 

institutions to assess the consumer’s 

ability to pay for such credit—all 

protections that the current Regulations 

DD and E regulatory frameworks do not 

provide. 

Balancing Reliance Interests Against 

Other Considerations 

The rule does not entirely eliminate 

the § 1026.4(c)(3) exception in part 

because both very large financial 

institutions and consumers have 

reliance interests in the existence of 

non-covered overdraft. Very large 

financial institutions have undertaken 

efforts to ensure that their non-covered 

overdraft credit programs comply with 

Regulations DD and E, and some 

consumers have come to rely on the 

availability of non-covered overdraft 

credit. 

The rule’s amendment to the 

§ 1026.4(c)(3) exception addresses the 

CFPB’s consumer protection concerns 

while recognizing these reliance 

interests. Under the rule’s approach, 

consumers who use above breakeven 

overdraft credit will receive Regulation 

Z’s credit disclosures as well as 

Regulation Z’s substantive protections. 


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191See 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. 

192See CFPB May 2023 Data Spotlight. 

Consumers who use non-covered 

overdraft credit will receive courtesy 

overdraft credit priced at or below a 

very large financial institution’s 

breakeven point. In addition, very large 

financial institutions that have invested 

in compliance with Regulations DD and 

E can maintain their current processes 

for providing consumers with noncovered overdraft credit so long as they 

price such credit at or below breakeven 

pricing. 

Commenters opposed to the CFPB’s 

amendment to the § 1026.4(c)(3) 

exception objected to the amendment’s 

impact on the pricing of non-covered 

overdraft credit. These commenters 

stated that, as a matter of principle, very 

large financial institutions should be 

allowed to earn a profit on non-covered 

overdraft without abiding by the 

requirements of TILA and Regulation Z. 

The CFPB takes a different view. When 

Congress created TILA, it did not 

exempt any category of overdraft credit 

from TILA. Rather, the Board created a 

limited exception for the longstanding 

practice of courtesy overdraft. 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 is inconsistent with the concept of 

providing an additional service as a 

courtesy because it encourages financial 

institutions to promote consumers’ use 

of non-covered overdraft credit and/or 

to calibrate their systems to increase 

overdraft fee revenue.191 In contrast, 

providing overdraft credit at or below its 

breakeven point incentivizes a very 

large financial institution to provide 

overdraft credit simply for the 

convenience of the customer so as to 

foster customer goodwill and to improve 

customer retention. 

These commenters also expressed 

concern that financial institutions could 

not sustainably offer overdraft credit at 

or below their breakeven price and 

would not incur the operational costs or 

take the compliance and litigation risks 

necessary to offer above breakeven 

overdraft in compliance with Regulation 

Z. However, even before the CFPB 

issued the proposed rule, several very 

large financial institutions had reduced 

or eliminated their overdraft fees,192 and 

most financial institutions currently 

waive overdraft fees for at least some 

overdrafts. Since some very large 

financial institutions can provide 

consumers with overdraft credit without 

assessing any overdraft fees, it stands to 

reason that other very large financial 

institutions could continue to provide 

non-covered overdraft credit for a fee 

that is at or near their breakeven price. 

Similarly, many very large financial 

institutions currently offer overdraft 

lines of credit that comply with 

Regulation Z. Commenters have not 

explained why they think that applying 

Regulation Z to above breakeven 

overdraft credit would create 

compliance and litigation risks that are 

materially different from the compliance 

and litigation risks that very large 

financial institutions already face when 

offering overdraft lines of credit. The 

CFPB acknowledges that certain above 

breakeven overdraft credit also must 

comply with certain CARD Act 

provisions and the compulsory use 

prohibition; but again, commenters have 

not explained how these provisions 

create materially different compliance 

and litigation risks from the risks faced 

by very large financial institutions with 

respect to their existing credit card 

offerings. And lastly, the breakeven 

standard is designed to allow very large 

financial institutions to break even 

regardless of the financial institution’s 

cost level. If a financial institution has 

unique circumstances that cause it to 

have higher compliance or other costs or 

losses, those can be incorporated into 

the financial institution’s fee amount to 

ensure that the courtesy overdraft 

product is offered without overall losses 

to the financial institution. The CFPB 

does not find it credible that a financial 

institution would choose to incur the 

reputational and competitive harms 

associated with eliminating overdraft 

altogether if the financial institution 

does not lose money on the service; 

however, if a financial institution chose 

to do so, consumers who want noncovered overdraft could avoid any 

ensuing harms by switching to a 

financial institution that does offer noncovered overdraft credit. 

Requested Changes to the CFPB’s 

Amendment to the § 1026.4(c)(3) 

Exception 

One commenter recommended that 

the CFPB amend comment 4(c)(3)–1 to 

specify that the comment does not apply 

to above breakeven overdraft credit 

offered in connection with a covered 

asset account as defined in 

§ 1026.62(b)(2). 

Comment 4(c)(3)–1 currently provides 

that, 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. The purpose of the 

comment is to clarify whether interest 

charged on overdraft credit is exempt 

from the Regulation Z definition of a 

finance charge. In the proposed rule, the 

CFPB proposed to amend the regulatory 

text of § 1026.4(c)(3) to establish that the 

paragraph does not apply to above 

breakeven overdraft credit. Accordingly, 

the paragraph’s commentary also would 

not have applied to above breakeven 

overdraft credit. Therefore, interest 

charges imposed on above breakeven 

overdraft credit would have been 

finance charges under the proposed rule 

regardless of whether a very large 

financial institution agreed in writing to 

pay an item into overdraft. Nonetheless, 

for clarity, the final rule amends 

comment 4(c)(3)–1 to provide that the 

comment, like the regulatory text in 

§ 1026.4(c)(3), does not apply to above 

breakeven overdraft credit as defined in 

§ 1026.62(b)(1). 

Another commenter stated that the 

CFPB should eliminate the 

§ 1026.4(c)(3) exception rather than 

attempt to amend it. They noted that the 

exception originally applied to checks, 

but that checks are used less frequently 

today, and contended that overdraft fees 

put a significant strain on low-income 

households while providing outsized 

profits to financial institutions. 

The CFPB has determined that 

amending the § 1026.4(c)(3) exception 

better serves the market and consumers 

than eliminating the exception 

completely because the amendment 

addresses the CFPB’s consumer 

protection concerns while 

acknowledging the long-standing 

reliance interests of both very large 

financial institutions and consumers 

and ensuring availability of courtesy 

overdraft credit. As explained above, the 

rule’s amendment to the § 1026.4(c)(3) 

exception adequately addresses the 

CFPB’s consumer protection concerns 

because consumers who use above 

breakeven overdraft credit will receive 

Regulation Z’s credit disclosures as well 

as Regulation Z’s substantive 

protections while consumers who use 

non-covered overdraft credit will 

receive courtesy overdraft credit priced 

at or below a very large financial 

institution’s breakeven point. This 

approach mitigates certain risks 

associated with current non-covered 

overdraft credit, like high cumulative 

fee burdens, account charge-offs, 

involuntary account closures, and loss 

of access to the banking system, while 


ddrumheller on DSK120RN23PROD with RULES2
106796 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

allowing very large financial institutions 

to continue offering and consumers to 

continue accessing non-covered below 

breakeven overdraft credit as a courtesy. 

Comment 4(c)(3)–3 

Proposed comment 4(c)(3)–3 would 

have directed readers to see 

§ 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 received no 

comments specifically addressing this 

proposed comment. Accordingly, the 

CFPB finalizes comment 4(c)(3)–3 as 

proposed. 

3. Defining and Determining ‘‘Above 

Breakeven Overdraft Credit’’ 

The CFPB’s Proposal 

The proposed rule added ‘‘above 

breakeven overdraft credit’’ as a new 

defined term at proposed 

§ 1026.62(b)(1). Proposed § 1026.62(b)(1) 

defined above breakeven overdraft 

credit 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 imposed 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 proposed 

§ 1026.62(d). 

Proposed § 1026.62(d)(1) clarified that 

overdraft credit offered by a very large 

financial institution was ‘‘above 

breakeven overdraft credit’’ for purposes 

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

or combination of charges for such 

credit exceeded 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’’ included all revenue received 

in connection with an overdraft 

transaction, including any extended or 

sustained overdraft fees, any interest 

charges on outstanding overdraft 

balances, and any other payments the 

very large financial institution received 

in connection with an overdraft 

transaction or transactions. 

Proposed § 1026.62(d)(1) provided 

two methods for determining whether 

an overdraft charge exceeded the 

average of a very large financial 

institution’s costs and charge-off losses 

for providing non-covered overdraft 

credit–the breakeven standard and the 

benchmark fee. To the extent that a very 

large financial institution preferred not 

to calculate its average costs and chargeoff losses for providing non-covered 

overdraft credit using the breakeven 

standard, the proposal permitted the 

very large financial institution to 

determine whether it was offering above 

breakeven overdraft credit based solely 

on the benchmark fee. 

Proposed Breakeven Standard 

Under the proposed breakeven 

standard, a very large financial 

institution used a two-step process to 

determine whether an overdraft charge 

exceeded the average of the institution’s 

costs and charge-off losses for providing 

non-covered overdraft credit. First, the 

very large financial institution 

determined its total direct costs and 

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

open at any point in the previous year 

(Step 1). For Step 1, proposed 

§ 1026.62(d)(2) clarified that only costs 

and charge-off losses that were 

specifically traceable to a very large 

financial institution’s provision of noncovered overdraft credit in the previous 

year could be considered total direct 

costs and charge-off losses for purposes 

of the breakeven standard. The 

proposed rule instructed a very large 

financial institution to exclude general 

overhead costs and charge-off losses 

resulting from unauthorized use, EFT 

errors, billing errors, returned deposit 

items, and rescinded provisional credit 

from the breakeven calculation because 

those costs and charge-off losses were 

not specifically traceable to a very large 

financial institution’s provision of noncovered overdraft credit. 

Next, the very large financial 

institution divided the total direct costs 

and charge-off losses figure from Step 1 

by the total number of non-covered 

overdraft transactions attributable to 

those accounts occurring in the previous 

year (Step 2). For purposes of 

calculating Step 2, the proposed rule 

allowed the very large financial 

institution to exclude non-covered 

overdraft transactions that did not incur 

fees from the total number of noncovered overdraft transactions. 

Additionally, the proposed rule clarified 

that, when a very large financial 

institution applied the breakeven 

standard either for the first time or after 

transitioning from the benchmark fee 

described at proposed 

§ 1026.62(d)(1)(ii), the very large 

financial institution could include 

direct costs and charge-off losses from 

any non-covered overdraft transaction 

occurring in the previous year 

regardless of whether the transaction 

would be considered above breakeven 

overdraft credit during that period. 

Proposed Benchmark Fee 

Under the benchmark fee approach 

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

a very large financial institution could 

presume that any charge or combination 

of charges it imposed for paying a 

transaction that overdraws an account 

did not exceed its costs and charge-off 

losses for providing non-covered 

overdraft credit if the charge or 

combination of charges was less than or 

equal to any benchmark fee established 

by the CFPB. The CFPB proposal 

suggested four potential options for this 

benchmark fee—$3, $6, $7, and $14— 

and sought comment on whether to 

finalize one of these numbers or some 

other number. 

The CFPB used the same general 

formula to calculate all four of the 

proposed alternative benchmark fees— 

charge-off losses divided by noncovered overdraft transactions, plus 

costs of $1 per non-covered overdraft 

transaction—but referred to different 

datapoints from data collected from five 

very large financial institutions (the 

sample) to derive each fee amount. The 

CFPB proposed four benchmark fee 

amounts in order to get feedback on two 

issues: (1) whether the CFPB should 

calculate charge-off losses based on the 

average across all institutions in its 

sample or across just the outlier in its 

sample with the highest costs (the 

outlier); and (2) whether the CFPB 

should include all non-covered 

overdraft transactions in its calculation 

or only non-covered overdraft 

transactions for which the institutions 

in its sample assessed a fee (fee-assessed 

transactions). 

The proposed $3 benchmark fee is the 

fee that results from calculating the 

benchmark fee using all non-covered 

overdraft transactions from all 

institutions in the CFPB’s sample; the 

proposed $6 benchmark fee is the fee 

that results from calculating the 

benchmark fee using only fee-assessed 

non-covered overdraft transactions from 

all institutions in the CFPB’s sample; 

the proposed $7 benchmark fee is the 

fee that results from calculating the 

benchmark fee using all non-covered 

overdraft transactions from the outlier 

in the CFPB’s sample; and the proposed 

$14 benchmark fee is the fee that results 

from calculating the benchmark fee 

using only fee-assessed non-covered 

overdraft transactions from the outlier 

in the CFPB’s sample. 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106797 

Comments Received 

Comments Relating to Above Breakeven 

Overdraft Credit 

Several commenters responded to the 

proposed rule’s requests for comment 

soliciting alternative approaches for 

determining whether credit is above 

breakeven overdraft credit. Some of 

these commenters recommended that 

the final rule allow the threshold for 

above breakeven overdraft credit to vary 

based on a range of factors, such as the 

amount of the overdraft, the amount of 

overdraft fees, the duration of the 

overdraft, the cost to the very large 

financial institution of providing the 

overdraft, the size of the very large 

financial institution, and the frequency 

with which the consumer overdraws 

their account. At least one of these 

commenters recommended that the 

charge to the consumer for non-covered 

overdraft should decline with each 

successive overdraft so that the 

consumer would not fall into a debt 

trap. Another of these commenters 

recommended that the charge to the 

consumer for the first overdraft should 

be lower than the charge for subsequent 

overdrafts in order to deter the 

consumer from frequently overdrawing 

their account. Other commenters 

recommended that the final rule define 

the threshold for above breakeven 

overdraft credit as an annual percentage 

rate rather than a flat fee. 

At least one commenter 

recommended that the final rule allow 

above breakeven overdraft credit to 

continue to qualify as non-covered 

overdraft credit if such credit included 

consumer-friendly features, such as cure 

periods, de minimis limits, transaction 

limits, and real-time notifications. 

Comments Relating to the Breakeven 

Standard 

Specifically Traceable Costs and ChargeOffs 

Various commenters asked the CFPB 

to provide greater clarity regarding the 

breakeven standard. Most of these 

commenters asked the CFPB to provide 

additional guidance regarding the types 

of costs and charge-off losses that would 

have been considered specifically 

traceable costs and charge-off losses 

under the breakeven standard. One of 

these commenters asked the CFPB to 

amend the Official Interpretations of 

Regulation Z to clarify whether the final 

rule would permit a very large financial 

institution to allocate a portion of its 

call center expenses to overdraft 

transactions if it did not have a method 

to track the calls it received relating to 

non-covered overdraft credit. 

A significant number of commenters 

requesting additional guidance 

regarding the breakeven standard also 

expressed concern that, as proposed, it 

was unclear whether the breakeven 

standard allowed very large financial 

institutions to recover certain costs, 

such as communication costs, branch 

servicing costs, collection costs, core 

provider/vendor costs, compliance 

costs, and technology costs. These 

commenters stated that a lack of clarity 

regarding these costs would create too 

much compliance and litigation risk for 

very large financial institutions to adopt 

the breakeven standard. Industry 

commenters stated that the formula for 

calculating costs and charge-off losses 

under the breakeven standard should 

include general overhead costs and 

charge-off losses resulting from 

unauthorized use, EFT errors, billing 

errors, returned deposit items, or 

rescinded provisional credit. These 

commenters also stated that the CFPB 

did not sufficiently explain its rationale 

for excluding such costs and losses from 

the breakeven standard’s cost and loss 

calculation formula. In contrast, 

consumer advocate commenters stated 

that it was appropriate to exclude 

general overhead costs and charge-off 

losses resulting from unauthorized use, 

EFT errors, billing errors, returned 

deposit items, and rescinded 

provisional credit from the breakeven 

standard’s cost and loss calculation 

formula because those costs and chargeoff losses did not have a direct 

relationship to the provision of noncovered overdraft services. These 

commenters further explained that 

including such costs in the breakeven 

standard’s cost and loss calculation 

formula would allow very large 

financial institutions to earn profits 

from their non-covered overdraft 

programs. 

Using Less Than 12 Months of Cost and 

Charge-Off Loss Data 

At least one commenter asked the 

CFPB to clarify how a very large 

financial institution would implement 

the breakeven standard if the institution 

lacked 12 months of cost and charge-off 

loss data. This commenter suggested 

that the CFPB should amend the 

breakeven standard so that it provides 

very large financial institutions with the 

flexibility to use less than 12 months of 

cost and charge-off loss data to calculate 

the breakeven fee. 

Accounting for Fee Waiver Policies 

Various commenters addressed 

whether the final rule’s breakeven 

standard should allow very large 

financial institutions to adjust their noncovered overdraft transaction totals to 

account for non-covered overdraft 

transactions that do not incur fees. 

Many commenters opposed allowing 

such adjustments because they believed 

that very large financial institutions 

would be less likely to grant 

discretionary waivers to frequent 

overdrafters than to infrequent 

overdrafters. These commenters also 

expressed concern that frequent 

overdrafters, who are disproportionately 

made up of lower-income and minority 

consumers, would pay higher fees than 

they would if very large financial 

institutions could not adjust their noncovered overdraft transaction totals to 

account for their fee waiver policies. 

Other commenters supported a rule that 

would allow very large financial 

institutions to adjust their non-covered 

overdraft transaction totals to account 

for non-covered overdraft transactions 

that do not incur fees. These 

commenters noted that, if transaction 

totals included waived and refunded 

transactions, it would discourage very 

large financial institutions from 

continuing consumer friendly policies, 

such as offering grace periods before 

assessing overdraft fees, capping the 

number of overdraft fees per day, and 

establishing de minimis thresholds for 

assessing overdraft fees. Additionally, 

these commenters noted that very large 

financial institutions legally cannot 

charge overdraft fees for certain 

transactions, such as certain APSN 

transactions, and, therefore, those 

institutions likely would reduce access 

to overdraft credit if the rule required 

them to include such transactions in 

their transaction totals. One of these 

commenters further stated that the final 

rule should only allow very large 

financial institutions to adjust their noncovered overdraft transaction totals to 

account for their fee waiver policies if 

the rule also mandated additional 

consumer protections, such as grace 

periods, caps on the number of overdraft 

fees per day, and de minimis thresholds. 

Extended or Sustained Overdraft Fees, 

Interest Charges on Outstanding 

Overdraft Balances, and Other Fees 

At least one commenter asked the 

CFPB to amend the Official 

Interpretations of Regulation Z to clarify 

whether extended or sustained overdraft 

fees, interest on outstanding overdraft 

balances, and transfer fees assessed to 

move funds from a credit account to the 

consumer’s depository account would 

count as overdraft charges for purposes 

of determining whether overdraft credit 

was above breakeven overdraft credit. 


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106798 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

Calculating Average Costs and ChargeOff Losses Within Subsets of Account 

Portfolios When Applying the 

Breakeven Standard 

At least one commenter provided 

their views on whether the final rule 

should allow very large financial 

institutions applying the breakeven 

standard to make separate calculations 

of their average costs and charge-off 

losses for non-covered overdraft within 

subsets of their depository account 

portfolios, such as account relationship 

tiers or average account balance ranges. 

This commenter stated that the final 

rule should not allow this practice 

because it would allow very large 

financial institutions to charge 

vulnerable consumers higher fees for 

non-covered overdraft credit while also 

raising the bar for such consumers to 

receive Regulation Z protections. 

Comments Relating to the Benchmark 

Fee 

The Benchmark Fee Formula 

At least one commenter stated that the 

formula used to calculate the 

benchmark fee should match the 

formula used to calculate the breakeven 

standard. 

Support for a Specific Benchmark 

Amount 

Numerous commenters responded to 

the proposed rule’s requests for 

comment soliciting feedback on the 

proposed benchmark fee figures. 

Commenters consisting of consumer 

advocates, government organizations, 

plaintiffs’ attorneys, and members of the 

public generally supported adoption of 

a $3 benchmark fee while financial 

institution and industry trade group 

commenters generally supported 

adoption of a high benchmark fee ($14 

or more). Some commenters supported 

benchmark fees falling between $3 and 

$14. 

Proponents of the $3 benchmark fee 

noted that it would provide greater 

benefits to consumers. These benefits 

included access to cheaper credit, 

decreased risk of falling into debt 

cycles, and decreased risk of becoming 

unbanked. Proponents of the $3 

benchmark were generally skeptical that 

adopting a low benchmark fee would 

limit consumers’ access to overdraft 

credit. They presented three points in 

support of this view. First, they noted 

that many very large financial 

institutions either currently do not 

charge a fee for overdraft services or 

have significantly reduced their fees. 

Second, they noted that very large 

financial institutions with costs 

exceeding the $3 benchmark fee could 

calculate their own costs under the 

breakeven standard and charge a higher 

fee, or offer overdraft credit that 

complies with Regulation Z. Third, they 

noted that very large financial 

institutions could make changes to their 

overdraft programs to lower their costs 

in response to the rule. 

Proponents of a $3 benchmark fee 

further stated that the proposed rule’s 

cost and loss estimates were generous. 

Specifically, they explained that, when 

estimating the cost of funds for financial 

institutions, the proposed rule assumed 

that financial institutions would lend an 

average of $120 to consumers per 

transaction for a period of one month. 

However, they noted that the median 

overdraft is only $50 and is repaid in 

three days. Similarly, they explained 

that, when estimating financial 

institutions’ operational costs for 

providing overdraft credit, the proposed 

rule assumed 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. They believed 

that those estimates overstated the 

amount of call center expense 

associated with operational costs. 

Proponents of a $3 benchmark fee 

further stated that the CFPB should not 

base the final rule’s benchmark fee on 

the charge-off costs of the one very large 

financial institution in its data with the 

highest costs because that institution 

appeared to be an outlier and, as a 

policy matter, the CFPB should 

incentivize very large financial 

institutions to reduce charge-offs 

because they often lead to consumers 

becoming unbanked. 

Proponents of a higher benchmark fee 

generally indicated that the CFPB 

should adopt a benchmark of $14 or 

more or stated only that $14 was too 

low. Several industry commenters 

stated that the proposed ranges for the 

benchmark fee would not allow them to 

recoup their costs. Some of these 

commenters stated that the $1 per 

transaction estimate for costs of funds 

and operational costs in the proposed 

rule was too low. Other industry 

commenters offered thoughts on what 

benchmark fee might be more 

appropriate for them. Two of these 

commenters, representing the interests 

of credit unions, including credit unions 

with assets exceeding the very large 

financial institution threshold, stated 

that average costs for the credit unions 

they represent ranged from $20–22 per 

overdraft transaction. Another 

commenter representing a statechartered bank with $1.6 billion in 

assets stated that the known operational 

costs (including charge-off losses) for 

non-covered overdraft at their 

institution were roughly 39 percent of 

overdraft fees, but that the institution 

incurs other costs, and that its total 

costs exceed $14 per overdraft 

transaction. Several other industry 

commenters stated that the CFPB should 

adopt the proposed $14 benchmark fee. 

Two of these commenters representing 

credit unions with assets below the very 

large financial institution threshold 

indicated that the institutions they 

represent recently lowered their 

overdraft fees from the $25–$35 range to 

the $10–$15 range (implying that their 

costs fall within or below the $10–$15 

range). Another commenter expressed 

concern that the sample used to 

calculate the benchmark fee was too 

small and that the CFPB should set the 

benchmark at $14 until the agency had 

an opportunity to review a larger 

sample. They further noted that a $14 

fee benchmark fee would represent a 

significant fee reduction from the 

current average fee of $34 and would 

save low-balance account holders, on 

average, just over $90 per year and 

frequent overdrafters at least $220 per 

year. They also noted that several very 

large financial institutions recently 

reduced their fees to between $10 and 

$15, so setting the benchmark fee at $14 

would make it easier for those 

institutions to comply with the rule. At 

least one industry commenter stated 

that the CFPB should set the benchmark 

fee at the current average fee in the 

market and adjust it for inflation going 

forward. 

At least one industry commenter 

representing a credit union with assets 

of approximately $4.8 billion supported 

a $5 fee per overdraft, limited to one fee 

per day. This commenter further 

explained that their institution 

conducted a review of costs for 

overdraft credit and determined that a 

$5 fee would be sustainable. A 

consumer advocate commenter stated 

that the CFPB should set the benchmark 

fee at $6 (i.e., the proposed benchmark 

fee that results from calculating the 

benchmark fee using only fee-assessed 

non-covered overdraft transactions from 

all institutions in the CFPB’s sample), 

but only if the rule also mandated 

additional consumer protections, such 

as grace periods, caps on the number of 

overdraft fees per day, and de minimis 

thresholds. 

Data Used for the Benchmark Fee 

Industry commenters criticized the 

analysis used to establish the proposed 

benchmark fee amounts. First, they 

stated that the sample used for the 


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analysis was inadequate. Specifically, 

they noted that the sample consisted of 

only five very large financial 

institutions (or approximately three 

percent of the very large financial 

institutions that the proposed rule 

would have covered). They further 

observed that, by attempting to 

incorporate a diverse set of geographic 

footprints, asset sizes, and business 

models into the sample, entire 

categories of financial institution types 

were represented by only a single 

institution’s data. They expressed 

concern that estimating the breakeven 

cost of overdraft credit based on five 

institutions would not be representative 

of the breakeven cost of overdraft credit 

for most very large financial 

institutions. They further criticized the 

sample because it did not include data 

from financial institutions that fell 

under the threshold for very large 

financial institutions. They explained 

that, even though the proposed rule 

would not have covered such 

institutions, it would have impacted 

such institutions indirectly because they 

would have had to adjust their overdraft 

fees to remain competitive with very 

large financial institutions. As a result, 

they believed that the analysis should 

have considered the impact of the 

proposed rule on those institutions. 

Consideration of Effects to Consumer 

Behavior 

Industry commenters stated that the 

analysis used to establish the proposed 

benchmark fee amounts failed to 

consider changes in consumer behavior. 

Specifically, these commenters 

explained that in the current market fees 

for non-covered overdraft credit have a 

deterrent effect. These commenters 

anticipated that, if the CFPB finalized 

any of the proposed benchmark fees, 

consumers would increase their use of 

overdraft credit. These commenters 

expressed concern that, as consumers 

increased their use of overdraft credit, 

more consumers would default on such 

credit, increasing charge-off costs as 

well as increasing the frequency of 

involuntary account closures and 

negative credit reporting. The 

commenters further anticipated that, as 

more consumers defaulted on noncovered overdraft credit, very large 

financial institutions would increase 

restrictions on such credit. In contrast, 

consumer advocate commenters 

expressed skepticism that overdraft fees 

were an effective way to deter 

consumers from overdrawing their 

deposit accounts. 

Consideration of Market Conditions 

Various commenters stated that the 

analysis used to establish the proposed 

benchmark fee amounts failed to 

consider changes in market conditions, 

in particular how charge-off costs would 

increase during an economic downturn. 

At least one of these commenters also 

expressed concern that neither the 

benchmark fee nor the breakeven fee 

would be sufficient for very large 

financial institutions to recover losses 

incurred during an economic downturn. 

Additionally, several industry 

commenters noted that the proposed 

benchmark fee amounts failed to adjust 

for inflation. 

Final Rule 

For the reasons stated in the proposal 

and below, the CFPB: 

• Finalizes as proposed (but with 

technical edits to conform to Code of 

Federal Regulations style requirements) 

the definition of above breakeven 

overdraft credit at § 1026.62(b)(1), the 

methodology described at 

§ 1026.62(d)(1) for determining whether 

credit is above breakeven overdraft 

credit, the description of the breakeven 

standard at § 1026.62(d)(1)(i), and the 

formula at § 1026.62(d)(2) for 

calculating the breakeven standard; 

• Amends § 1026.62(d)(1)(ii) to set 

the benchmark fee at $5; 

• Adds § 1026.62(d)(3) to provide 

additional guidance regarding the 

circumstances under which a cost or 

charge-off loss is specifically traceable; 

• Adds § 1026.62(d)(4) to provide 

additional guidance regarding the 

meaning of the phrase ‘‘charge or 

combination of charges’’ for purposes of 

§ 1026.62(d)(1); 

• Adds § 1026.62(d)(5) to provide 

additional guidance on how a very large 

financial institution determines the pro 

rata share of its total direct costs and 

charge-off losses under 

§ 1026.62(d)(1)(i); and 

• Adds § 1026.62(d)(6) to define 

‘‘previous year’’ for purposes of 

§ 1026.62(d)(1)(i). 

These sections are discussed more 

fully below. 

Definition of Above Breakeven 

Overdraft Credit (§ 1026.62(b)(1)) 

Section 1026.62(b)(1) defines above 

breakeven overdraft credit as 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). 

As discussed above, several 

commenters asked the CFPB to consider 

a threshold for above breakeven 

overdraft credit that varies based on a 

range of factors, such as the amount of 

the overdraft, the amount of overdraft 

fees, the duration of the overdraft, the 

cost to the very large financial 

institution of providing the overdraft, 

the size of the very large financial 

institution, the frequency with which 

the consumer overdraws their account, 

or a periodic rate. Other commenters 

asked the CFPB to allow above 

breakeven overdraft credit to continue 

to qualify as non-covered overdraft 

credit if such credit included consumerfriendly features, such as cure periods, 

de minimis limits, transaction limits, 

and real-time notifications. 

The CFPB adopts the approach 

outlined in the proposed rule over the 

approaches proposed by commenters 

because it is easier for financial 

institutions to implement, easier for 

regulators to enforce, and more 

protective of consumers. Under the 

approach adopted in this rule, overdraft 

credit is above breakeven overdraft if 

the charge exceeds the higher of the fee 

calculated using the breakeven standard 

or the benchmark fee. As a result, both 

very large financial institutions and 

regulators can readily determine 

whether an overdraft transaction is 

above breakeven overdraft credit by 

reviewing the fee charged to verify 

whether it exceeds either the benchmark 

fee or the fee permitted under the 

breakeven standard. If the threshold for 

above breakeven overdraft varied by 

factors such as the amount, duration, 

and cost of each overdraft, both very 

large financial institutions and 

regulators would need to make case-bycase determinations regarding whether 

individual transactions fell above or 

below the relevant threshold for above 

breakeven overdraft credit. 

As noted, the approach adopted in the 

rule is also more protective of 

consumers. For example, many noncovered overdraft programs operating 

under the existing 1026.4(c)(3) 

exception already include consumerfriendly features, such as cure periods, 

de minimis limits, and transaction 

limits. Unfortunately, despite having 

these consumer-friendly features, many 

non-covered overdraft programs still 

operate as high-cost consumer credit 

products that put consumers at risk of 

harms such as high cumulative fee 

burdens, account charge-offs, 

involuntary account closures, and loss 

of access to the banking system. 

Allowing above breakeven overdraft 

credit to continue to qualify as noncovered overdraft credit when it 


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193 89 FR 13852, 13869 (Feb. 23, 2024). 

includes consumer-friendly features 

would allow those potential harms to 

persist in their present form. In contrast, 

the approach adopted in the rule 

significantly mitigates these risks by 

ensuring that very large financial 

institutions provide the non-covered 

overdraft credit as a courtesy. Therefore, 

the CFPB adopts § 1026.62(b)(1) as 

proposed. 

General Calculations for Above 

Breakeven Overdraft Credit 

(§ 1026.62(d)(1)) 

Proposed § 1026.62(d)(1) clarified 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 the breakeven standard 

outlined in § 1026.62(d)(2); or (2) the 

benchmark fee published by the CFPB. 

The CFPB adopts § 1026.62(d)(1) as 

proposed. As explained in the proposed 

rule, the § 1026.62(d)(1) provides very 

large financial institutions 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 and the benchmark 

fee. This approach decreases 

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, while providing other 

very large financial institutions the 

flexibility to make the above breakeven 

calculation on their own. 

In response to commenters’ request 

for guidance clarifying whether 

extended or sustained overdraft fees, 

interest on outstanding overdraft 

balances, and transfer fees would count 

as overdraft charges for purposes of 

determining whether overdraft credit 

was above breakeven overdraft credit, 

the CFPB amends its proposal by adding 

§ 1026.62(d)(4), which incorporates 

guidance that appeared in the preamble 

of the proposed rule into the final 

regulation text.193 Specifically, 

§ 1026.62(d)(4) provides that, for 

purposes of § 1026.62(d)(1), a charge or 

combination of charges includes all 

revenue received in connection with an 

overdraft transaction, including, but not 

limited to, 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. 

Breakeven Standard (§§ 1026.62(d)(1)(i), 

1026.62(d)(5), and 1026.62(d)(6)) 

Proposed § 1026.62(d)(1)(i) outlined 

the breakeven standard used to 

determine whether overdraft credit was 

above breakeven overdraft credit for 

purposes of proposed § 1026.62(b)(1). 

To employ the breakeven standard 

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

a very large financial institution 

determines its total direct costs and 

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

open at any point during the prior year 

and then divides that figure by the total 

number of non-covered overdraft 

transactions attributable to those 

accounts occurring in the prior year. 

The CFPB adopts § 1026.62(d)(1)(i) as 

proposed. 

The CFPB sought comment regarding 

whether the breakeven standard should 

allow very large financial institutions to 

make separate calculations of their 

average costs and charge-off losses for 

non-covered overdraft within subsets of 

their depository account portfolio, such 

as account relationship tiers or average 

account balance ranges. At least one 

commenter stated that the final rule 

should not allow very large financial 

institutions to make separate 

calculations of their average costs and 

charge-off losses for non-covered 

overdraft within subsets of their 

depository account portfolios. As 

explained above, the CFPB favors an 

approach for determining whether a 

transaction is above breakeven overdraft 

that is straightforward for very large 

financial institutions to implement and 

simple for regulators to validate. 

Requiring very large financial 

institutions to calculate their average 

costs and charge-off losses for noncovered overdraft across their entire 

depository account portfolio advances 

these goals in at least two ways. First, 

it simplifies the breakeven calculation 

because financial institutions would not 

need to determine how they would 

apportion costs within subsets of their 

depository account portfolios. Second, it 

allows regulators to confirm a very large 

financial institution’s compliance with 

the above breakeven overdraft 

requirement more easily because they 

would only need to review a single 

calculation. Therefore, the final rule 

requires very large financial institutions 

to calculate their average costs and 

charge-off losses for non-covered 

overdraft across their entire depository 

account portfolio. 

The CFPB also sought comment 

regarding whether the rule should allow 

a very large financial institution to 

exclude non-covered overdraft 

transactions from the transaction totals 

used to calculate the threshold for the 

breakeven standard in instances where 

the very large financial institution 

waived, refunded, or otherwise did not 

assess fees for those transactions 

(‘‘uncharged transactions’’). As 

discussed above, several commenters 

addressed this issue. The CFPB has 

considered these comments and 

determined that a very large financial 

institution should include all noncovered overdraft transactions, 

including uncharged transactions, in the 

transaction totals used to calculate the 

breakeven threshold. 

The CFPB takes this position because 

including all non-covered overdraft 

transactions in the transaction totals 

used to calculate the breakeven 

threshold will keep the breakeven 

standard tailored to ensuring financial 

institutions can break even on just the 

non-covered overdraft transaction 

products and is not used to crosssubsidize other deposit account-related 

expenses like losses associated with 

uncharged transactions. The rule is not 

designed to allow a financial institution 

to turn a profit on non-covered overdraft 

transactions in order to cover other 

expenses related to the depository 

account. And the CFPB concludes that 

it would not need to provide an 

incentive to ensure uncharged 

transactions continue because the fact 

that financial institutions are providing 

them now at a loss suggests there is 

already sufficient logistical, 

competitive, or reputational incentive 

for them to exist. 

This approach will also result in fairer 

treatment of consumers who pay fees for 

non-covered overdraft. As explained 

above, a very large financial institution 

employs the breakeven standard by 

dividing its total direct costs and 

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

open at any point during the prior year 

(the numerator) by the total number of 

non-covered overdraft transactions 

attributable to those accounts occurring 

in the prior year (the denominator). If 

the final rule permitted very large 

financial institutions to exclude 

transactions that do not incur fees from 

the denominator, the share of costs and 

losses attributable to the transactions 

remaining in the denominator increases. 

As a result, consumers who paid fees for 

non-covered overdraft transactions 

would pay higher fees for those 


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194 89 FR 13852, 13870 (Feb. 23, 2024). 

transactions than they otherwise would 

under a rule requiring very large 

financial institutions to include all noncovered overdraft transactions in the 

transaction totals used to calculate the 

breakeven threshold. To avoid such cost 

shifting, the CFPB has determined that 

a very large financial institution should 

include all non-covered overdraft 

transactions, including uncharged 

transactions, in the transaction totals 

used to calculate the breakeven 

threshold. 

The CFPB notes that another method 

for ensuring that the breakeven fees only 

covered losses on non-covered overdraft 

transactions would be to take out losses 

associated with uncharged transactions. 

The CFPB has determined that it would 

be practically difficult for financial 

institutions to isolate losses from 

charge-offs that resulted from overdrafts 

that incurred fees from losses from 

charge-offs resulting from uncharged 

transactions. Therefore, the CFPB has 

determined the best approach is to 

allow financial institutions to include 

all losses in the breakeven calculation, 

and account for that by including all 

overdraft transactions, whether they 

involved a fee or not. The result is to 

reach a fee amount that more accurately 

reflects a financial institution’s marginal 

costs and losses per transaction. 

To clarify that very large financial 

institutions must include uncharged 

transactions in the transaction totals 

used to calculate the threshold for the 

breakeven standard, the CFPB amends 

its proposal by adding § 1026.62(d)(5). 

Section 1026.62(d)(5) will provide that, 

when calculating the pro rata share of 

its total direct costs and charge-off 

losses for providing non-covered 

overdraft credit in the previous year, a 

very large financial institution must 

include all non-covered overdraft 

transactions from the previous year in 

its calculation. 

At least one other commenter asked 

the CFPB to clarify how a very large 

financial institution can implement the 

breakeven standard if the institution 

lacks cost and charge-off loss data from 

the previous year. This commenter 

suggested that the CFPB amend the 

breakeven standard so that it provides 

very large financial institutions with the 

flexibility to use less than 12 months of 

cost and charge-off loss data to calculate 

the breakeven fee. 

As explained in the proposed rule, 

very large financial institutions must 

use annualized cost and charge-off loss 

figures because those figures even out 

seasonal variations that could occur 

with a shorter review period.194 As a 

result, if a very large financial 

institution lacks cost and charge-off loss 

data covering a full year, it cannot 

implement the breakeven standard. 

Instead, a very large financial institution 

wishing to offer non-covered overdraft 

credit should utilize the benchmark fee 

until it has sufficient data to implement 

the breakeven standard. 

The proposal did not define the term 

‘‘previous year’’ for purposes of 

§ 1026.62(d)(1)(i), but the CFPB 

intended to provide very large financial 

institutions with flexibility to use cost 

and charge-off loss data from a recent 

12-month period, such as the prior 

calendar year, any 365-day period that 

begins within the prior calendar year, 

the prior four financial quarters, or the 

prior accounting year. To provide 

additional guidance regarding the 

meaning of ‘‘previous year,’’ the CFPB 

amends its proposal by adding 

§ 1026.62(d)(6). Section 1026.62(d)(6) 

provides that, for purposes of 

§ 1026.62(d)(1)(i), the term ‘‘previous 

year’’ means a period that encompasses, 

at the very large financial institution’s 

option, any of the following periods— 

the prior calendar year, any 365-day 

period that begins within the prior 

calendar year, the prior four financial 

quarters, or the very large financial 

institution’s prior accounting year. 

When implementing the breakeven 

standard either for the first time or after 

transitioning from the benchmark fee, a 

very large financial institution can 

include direct costs and charge-off 

losses from any transaction that was a 

non-covered overdraft transaction 

during the previous year. For example, 

to comply with the final rule’s effective 

date of October 1, 2025, a very large 

financial institution using the breakeven 

standard could calculate direct costs 

and charge-off losses based on all noncovered overdraft transactions occurring 

from January 1, 2024 through December 

31, 2024 (the previous calendar year). 

Cost and Loss Calculation for the 

Breakeven Standard (§§ 1026.62(d)(2) 

and 1026.62(d)(3)) 

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 proposed to add § 1026.62(d)(2). 

Proposed § 1026.62(d)(2) provided 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. 

As discussed above, various 

commenters asked the CFPB to provide 

greater clarity regarding the breakeven 

standard. Most of these commenters 

asked the CFPB to provide additional 

guidance regarding the types of costs 

and charge-off losses that are considered 

specifically traceable costs and chargeoff losses under the breakeven standard. 

As the CFPB explained in its 

proposal, when calculating its costs and 

charge-off losses under the breakeven 

standard, a very large financial 

institution can consider costs and 

charge-off losses that are specifically 

traceable to its provision of non-covered 

overdraft credit. The CFPB proposed 

this specifically traceable standard in 

order to prevent very large financial 

institutions from employing the 

breakeven standard in a manner that 

would have circumvented 

§ 1026.62(b)(1). Without such a 

restriction, very large financial 

institutions might have included costs 

and charge-off losses in their average 

cost and loss calculations that are more 

appropriately attributable either to other 

segments of their deposits business or to 

their deposits business overhead. 

The proposed rule also provided an 

example of how the specifically 

traceable test would work in practice. In 

that example, if a very large financial 

institution had used issue tagging in its 

call center to reasonably and accurately 

gauge the number of customer service 

calls it received 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. This example demonstrates 

that the specifically traceable test 

consists of two questions. First, does the 

cost or charge-off loss have a direct 

relationship to the provision of noncovered overdraft services? Second, can 

the very large financial institution 

provide evidence to demonstrate that 

direct relationship? If a very large 

financial institution can answer both 

questions in the affirmative, then the 

cost or charge-off loss is specifically 

traceable, and the very large financial 

institution may consider the cost or 

charge-off loss for purposes of the 

breakeven standard. 

As discussed above, some 

commenters stated that the formula for 

calculating costs and charge-off losses 

under the breakeven standard should 

include general overhead costs and 

charge-off losses resulting from 

unauthorized use, EFT errors, billing 

errors, returned deposit items, or 

rescinded provisional credit. However, 

as other commenters noted, such costs 

and losses do not have a direct 


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relationship to the provision of noncovered overdraft services. This is true 

because very large financial institutions 

incur those costs and losses even if they 

do not extend non-covered overdraft 

credit to the consumer. As a result, such 

costs and charge-off losses fail the first 

part of the specifically traceable test and 

cannot be included in the breakeven 

standard’s cost and charge-off 

calculation formula. 

Very large financial institutions 

should employ a similar analysis when 

considering whether costs such as 

communication costs, branch servicing 

costs, collection costs, core provider/ 

vendor costs, compliance costs, and 

technology costs are specifically 

traceable to the provision of noncovered overdraft credit. For example, a 

commenter asked whether the final rule 

would permit a very large financial 

institution to allocate a portion of its 

call center expenses to overdraft 

transactions if it did not have a method 

to track the calls it received relating to 

non-covered overdraft credit. As 

demonstrated by the example above, 

because the institution could not satisfy 

the second part of the specifically 

traceable test by producing evidence to 

substantiate the cost, the cost would not 

be specifically traceable and the very 

large financial institution could not 

include the cost under the breakeven 

standard. 

After considering the comments 

received, and for the reasons stated 

above, the CFPB adopts § 1026.62(d)(2) 

as proposed. For clarity, the CFPB is 

amending its proposal by adding 

§ 1026.62(d)(3) to describe the two-part 

test discussed above. Specifically, 

§ 1026.62(d)(3) provides that, for 

purposes of § 1026.62(d)(2), a cost or 

charge-off loss is specifically traceable if 

it has a direct relationship to the 

provision of non-covered overdraft 

services and the very large financial 

institution can provide evidence to 

demonstrate that direct relationship. 

Benchmark Fee (§ 1026.62(d)(1)(ii)) 

Section 1026.62(d)(1)(ii) establishes 

the benchmark fee. In its proposal, the 

CFPB suggested four potential 

benchmark fee amounts—$3, $6, $7, and 

$14—based on data collected from five 

very large financial institutions (the 

sample) and sought comment on 

whether to finalize one of these or some 

other fee amount. The CFPB used the 

same formula (the benchmark formula) 

to calculate all four of these proposed 

alternative benchmark fees but relied on 

different datapoints from the sample to 

derive each fee amount. 

The proposed benchmark formula 

used a methodology that was similar to 

the methodology that a very large 

financial institution would use to 

calculate its costs and losses under the 

breakeven standard provided in 

§ 1026.62(d)(2) (the breakeven formula). 

The CFPB sought comment on this 

approach. At least one commenter 

stated that the methodology used to 

calculate the benchmark fee should 

track the breakeven formula. The 

commenter further underscored that 

both methodologies should treat the 

issue of uncharged transactions 

consistently. 

Consistent with its proposal, the 

CFPB uses a calculation methodology 

for the benchmark fee that is similar to 

the calculation methodology that a very 

large financial institution uses to 

calculate its cost and losses under the 

final rule’s breakeven standard. The 

CFPB considers this approach 

appropriate because the benchmark fee 

is meant to serve as a proxy for a 

financial institution’s own breakeven 

calculation. The CFPB finds that 

providing such a proxy will facilitate 

compliance by decreasing compliance 

costs for very large financial institutions 

and by accommodating those 

institutions that lack the ability to 

determine their average costs and 

charge-off losses for providing noncovered overdraft credit under the 

breakeven standard. To advance these 

goals, the CFPB conducted its own 

calculation under the breakeven 

standard using cost and loss data from 

a sample of very large financial 

institutions. The results of this 

calculation reflect the average costs and 

charge-off losses for providing noncovered overdraft credit under the 

breakeven standard for the financial 

institutions in its sample. The CFPB 

anticipates that many very large 

financial institutions will be able to rely 

on the benchmark fee in lieu of 

performing their own calculation under 

the breakeven standard. Furthermore, as 

discussed above, the final rule requires 

a very large financial institution to 

include all non-covered overdraft 

transactions in the transaction totals 

used to calculate the breakeven 

threshold. For the same reasons, the 

CFPB uses the same approach to 

calculate the benchmark fee. 

In the proposal, the CFPB also 

considered whether it should calculate 

the benchmark fee based on data from 

all five institutions in its sample or just 

the financial institution in its sample 

with the highest charge-off losses. 

Commenters in favor of using data from 

all five institutions generally stated that 

the CFPB should not calculate the 

benchmark fee using the data of a single 

outlier financial institution and that the 

average from the entire sample provides 

a more accurate benchmark fee estimate. 

These commenters also expressed 

concern that relying on data from the 

outlier institution might discourage very 

large financial institutions from 

adopting practices that reduce chargeoffs, which could result in greater 

consumer harm in the form of account 

closures and negative reporting than 

otherwise would occur if the CFPB 

calculated the benchmark fee based on 

the average charge-off losses from all 

five institutions in its sample. 

Commenters in favor of using data 

from the outlier institution stated that 

the CFPB’s sample was small and that 

the average may not be probative of the 

appropriate benchmark fee amount. 

They further noted that, even if the 

CFPB adopted its highest proposed 

benchmark fee of $14, the benchmark 

fee would reflect a significant reduction 

in the average market price for noncovered overdraft. As a result, these 

commenters thought that basing the 

benchmark fee on data from the outlier 

institution was the sounder approach. 

The CFPB has considered these 

comments and determined that it 

should calculate the benchmark fee 

based on data from all five institutions 

in its sample. The CFPB shares the 

concerns expressed by commenters who 

noted that relying on data from the 

outlier institution might result in greater 

consumer harm than otherwise would 

occur if the CFPB calculated the 

benchmark fee based on the average 

charge-off losses from all five 

institutions in its sample. In addition, 

the outlier institution’s losses were 

significantly higher than losses for other 

institutions in the sample and for 

institutions that provided loss 

information in their comments, which 

suggests that using the outlier 

institution’s losses to set the benchmark 

would overestimate the losses incurred 

by many institutions. Moreover, to the 

extent the benchmark fee amount is 

insufficient for a given institution to 

recoup its costs and losses, it may 

calculate its own costs and losses using 

the breakeven standard. 

By applying a calculation 

methodology similar to the breakeven 

formula to all transaction data taken 

from all five of the very large financial 

institutions, the CFPB is using the same 

approach it used to derive the proposed 

$3 benchmark fee. As discussed above, 

the CFPB received numerous comments 

regarding the amount of the benchmark 

fee. These comments fell into three 

general categories—support for the $3 

benchmark fee, support for a benchmark 

fee falling in between the $3 and $14 

range, and support for a benchmark fee 


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195See 89 FR 13852, 13893 (Feb. 22, 2024); part 

VII.E.1.iii of this rule. 

of $14 or more. Proponents of the $3 

benchmark fee stated that a $3 

benchmark fee would benefit 

consumers. They also viewed a $3 

benchmark fee as generous because they 

believed that the CFPB overestimated 

the cost of funds and operational costs 

faced by very large financial 

institutions. At least two commenters 

supported a benchmark fee falling 

between the $3 and $14 range. One of 

these commenters explained that their 

financial institution conducted a review 

of its costs for overdraft credit and 

determined that a $5 fee would be 

sustainable for their institution. The 

other commenter stated that the CFPB 

should set the benchmark fee at $6, but 

only if the rule also mandated 

additional consumer protections, such 

as grace periods, caps on the number of 

overdraft fees per day, and de minimis 

thresholds. This commenter explained 

that it wanted the CFPB to adopt the 

approach it used to derive the proposed 

$6 benchmark fee, but with additional 

consumer protections in order to 

prevent very large financial institutions 

from changing waiver policies in order 

to increase revenues. Proponents of a 

benchmark fee of $14 or more stated 

either that their costs were closer to $14 

or that the CFPB’s estimates of very 

large financial institutions’ costs were 

too low. These commenters also 

criticized the analysis used to establish 

the proposed benchmark fee amounts. 

First, they stated that the sample used 

for the analysis was too small and was 

unrepresentative of the broader market. 

Additionally, they criticized the sample 

because it did not include data from 

financial institutions that fell under the 

threshold for very large financial 

institutions. 

No commenters representing very 

large financial institutions provided the 

CFPB with additional data that would 

impact the findings of its original 

analysis establishing the proposed 

benchmark fee amounts. One 

commenter representing a bank with 

$1.6 billion in assets provided a 

breakdown of known costs and losses 

associated with the operation of their 

bank’s overdraft program. This 

commenter determined that the known 

costs and losses associated with their 

bank’s overdraft program represented 

roughly 39 percent of its overdraft fee of 

$25, which equates to $9.75. However, 

this estimate likely overstates the costs 

and losses attributable to a very large 

financial institution’s overdraft program 

for several reasons. First, the 

commenter’s cost estimates included 

costs for manual review of overdraft 

payment decisions by bank employees. 

These review costs represented $1 of the 

$9.75, or approximately ten percent of 

its costs. The CFPB expects that many 

very large financial institutions have 

automated such reviews, making them 

significantly less costly. Second, the 

commenter’s cost estimates included 

costs associated with mailing overdraft 

notices. These mail-related costs 

represented $1.75 of the $9.75, or 

approximately 18 percent of its costs. 

The CFPB expects that many very large 

financial institutions provide such 

notices electronically, significantly 

lowering the cost of providing such 

notices. Accounting for these and other 

efficiencies gained by scale at very large 

financial institutions, the CFPB expects 

the costs and losses of many very large 

financial institutions to be lower than 

this bank’s estimated costs and losses. 

An additional commenter representing a 

credit union with $4.8 billion in assets 

stated that based on a recent review of 

costs conducted by the credit union, a 

$5 fee would be sustainable for their 

institution. 

Both commenters referenced in the 

preceding paragraph represented 

financial institutions with less than $10 

billion in assets. It stands to reason that 

many very large financial institutions, 

which have the advantage of scale, 

could continue to operate overdraft 

programs at the proposed $3 benchmark 

fee. As noted above, the benchmark fee 

is not a regulatory obligation; it is a 

proxy for a financial institution’s own 

breakeven calculation and is being 

adopted to ease the compliance burden 

of implementing the breakeven 

standard. To the extent the benchmark 

fee amount is insufficient for a given 

institution to recoup its costs and losses, 

that institution may calculate its own 

costs and losses using the breakeven 

standard. However, to help ensure that 

the benchmark fee covers additional 

costs noted by commenters, such as 

costs relating to branch servicing, 

collections, core provider/vendor 

services, compliance, technology, and 

the provision of overdraft notices, the 

CFPB will increase its cost estimates for 

its proposed $3 benchmark fee by $2 per 

transaction. Therefore, the CFPB 

finalizes § 1026.62(d)(1)(ii) to set the 

benchmark fee at $5. 

Industry commenters also expressed 

concern that, if the CFPB finalized any 

of the proposed benchmark fees, 

consumers would increase their use of 

overdraft credit. These commenters 

contended that, as consumers increased 

their use of overdraft credit, more 

consumers would default on such 

credit, increasing charge-off costs as 

well as increasing the frequency of 

involuntary account closures and 

negative credit reporting. The 

commenters further anticipated that, as 

more consumers defaulted on noncovered overdraft credit, very large 

financial institutions would increase 

restrictions on such credit. 

Both the proposed rule’s 1022(b) 

analysis and the final rule’s 1022(b) 

analysis have considered how lower 

prices might impact consumer 

behavior.195 For consumers who 

overdraft by mistake, both 1022(b) 

analyses determined that a lower price 

for non-covered overdraft credit would 

be unlikely to change consumer 

behavior because those consumers did 

not intend to overdraft in the first place. 

This view is consistent with the views 

expressed by consumer advocates who 

commented that overdraft fees are not 

an effective deterrent and that lowering 

the amount of overdraft fees likely will 

not significantly impact whether or not 

a consumer overdraws their account. 

For consumers who use non-covered 

overdraft credit deliberately, both 

1022(b) analyses determined that a 

lower price for non-covered overdraft 

credit would lead some consumers to 

use such credit more frequently on the 

margin. Nonetheless, very large 

financial institutions could take 

proactive measures to reduce such use, 

should they prefer that—such as by 

managing overdraft credit limits. 

Commenters also stated that the 

analysis used to establish the proposed 

benchmark fee amounts failed to 

consider changes in market conditions. 

Specifically, these commenters noted 

that the analysis failed to consider how 

charge-off costs could increase during 

an economic downturn. At least one of 

these commenters also expressed 

concern that neither the benchmark fee 

nor the breakeven fee would be 

sufficient for very large financial 

institutions to recover losses incurred 

during an economic downturn. 

Additionally, several commenters noted 

that the proposed benchmark fee 

amounts failed to adjust for inflation. 

To the extent that a very large 

financial institution determines that 

changes in market conditions, such as 

an economic downturn or inflation, 

make the benchmark fee too low, the 

final rule provides very large financial 

institutions with the flexibility to 

calculate their own breakeven pricing or 

to offer covered overdraft credit in 

compliance with the requirements of 

Regulation Z. The CFPB expects that 

very large financial institutions 

employing the breakeven standard 

during an economic downturn should 


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106804 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

be able to effectively manage their credit 

risk through traditional credit risk 

management practices, such as adjusting 

underwriting standards. Nevertheless, 

the CFPB will continue to monitor the 

market to determine whether 

adjustments to the benchmark fee or the 

breakeven standard are warranted. 

E. Changes To Covered Overdraft Credit 

Offered by Very Large Financial 

Institutions 

As discussed below, the CFPB is 

updating 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 proposed 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 

and to require the institution to 

structure covered overdraft credit as a 

separate credit account. The CFPB 

preliminarily determined that this 

structural requirement would make it 

easier for creditors and consumers to 

implement and understand, 

respectively, covered overdraft credit. 

For the reasons discussed below, the 

CFPB is finalizing § 1026.62(c) as 

proposed. 

Comments Received 

Several industry commenters opposed 

the CFPB’s proposal. They argued that 

the requirement to structure overdraft as 

a separate account would substantially 

increase the cost of providing overdraft 

credit relative to the current cost of 

providing non-covered overdraft as a 

negative balance on the asset account. 

Some argued that the requirement was 

unreasonable or impractical in 

connection with most overdrafts, which 

are of small duration and amount. 

Several consumer advocate 

commenters supported the CFPB’s 

proposal. They argued that important 

TILA consumer protections, including 

the offset prohibition and the periodic 

statement disclosure and billing error 

resolution requirements, would be 

difficult or impossible for creditors to 

implement without separating a 

consumer’s asset account from the 

consumer’s linked covered overdraft 

credit. They also argued that the 

separate account structure would 

improve consumers’ ability to know 

when they are accessing, and to decide 

whether they want to access, covered 

overdraft credit, as well as their ability 

to know when they are repaying, and to 

decide whether they want to repay, the 

overdraft credit. They argued that the 

current high cost of overdraft credit 

makes such consumer understanding 

and control particularly important. One 

nonprofit commenter observed that 

structuring covered overdraft as a credit 

account separate from the asset account 

is the way that overdraft lines of credit 

have worked since TILA’s enactment in 

1968 and is the way that checking 

accounts with linked credit card 

accounts work. This commenter agreed 

with the CFPB’s proposal because, this 

commenter stated, the separation of the 

credit account from the asset account is 

a core element of TILA. 

Final Rule 

For the reasons discussed below, the 

CFPB is finalizing § 1026.62(c) as 

proposed. Final § 1026.62(c) prohibits a 

very large financial institution from 

structuring covered overdraft credit as a 

negative balance on a checking or other 

transaction account and requires the 

institution to structure covered 

overdraft credit as a separate credit 

account. The CFPB has 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. 

The separate account structure 

requirement will enable institutions to 

comply with the requirements of TILA 

and Regulation Z, including, for 

example, the offset prohibition. It is not 

possible for an institution to maintain 

both a credit balance and an asset 

balance at the same time for a consumer 

within a single asset account that has no 

tied credit account or subaccount. It is 

therefore also not possible for the 

institution to provide overdraft credit to 

the consumer in a manner that complies 

with the Regulation Z offset prohibition 

without providing the consumer with a 

credit account or subaccount that is 

separate from the tied asset account. 

Further, Regulation Z’s open-end 

rules are generally drafted with the 

assumption that the product in question 

is a pure credit product, without 

substantial positive funds. For example, 

existing § 1026.11(a) generally provides 

that creditors must refund any positive 

balances on the credit account to the 

consumer within six months. As 

another example, the rules for defining 

finance charges in the credit card 

context generally treat all transaction 

charges as finance charges, which makes 

sense when all transactions are 

generally assumed to involve use of 

credit. 

The separate account structure 

requirement will also avoid the 

uninformed use of credit by enabling 

consumers to better understand and 

monitor their asset and credit balances 

and trace how their funds are being 

used through more informative periodic 

statement disclosures, both for the asset 

account as required by Regulations E 

and DD and for the linked separate 

covered overdraft credit account as 

required by Regulation Z. The separate 

account structure will protect 

consumers from unfair credit billing and 

credit card practices by enabling them 

to control their funds. Specifically, the 

requirement will empower consumers to 

use funds from incoming deposits to 

their accounts for purposes other than 

immediately repaying an overdraft 

balance, as the offset prohibition 

requires institutions to permit 

consumers to do. 

The CFPB has determined that the 

separate credit account structure by 

itself will not materially increase the 

cost of providing non-covered overdraft 

credit that will become covered 

overdraft credit under this final rule. 

This structure is demonstrably feasible 

today because very large financial 

institutions already have it in place for 

their overdraft lines of credit and for 

their credit cards linked to checking 

accounts. Indeed, creditors have 

structured their overdraft lines of credit 

in this manner since TILA’s enactment. 

If a very large financial institution that 

today does not offer such lines of credit 

or linked credit cards seeks to provide 

above breakeven overdraft credit, the 

institution will be required to 

implement the separate account 

structure as part of doing so, when they 

will already be incurring costs for 

implementing other operational changes 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106805 

196 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 existing 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 final rule amends the 

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

of covered overdraft credit, such that certain 

overdraft credit that is currently non-covered 

overdraft credit will be considered covered 

overdraft credit when this rule becomes effective. 

Like other covered overdraft credit, this newly 

covered overdraft credit will be generally 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 non-statutory 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 final rule updates 

these non-statutory exceptions, which subjects 

certain covered overdraft credit, including certain 

newly covered overdraft credit, to the CARD Act 

provisions. 

197Section 2 of the CARD Act expressly granted 

authority to the Federal Reserve Board to issue such 

rules as it considers necessary to the carry out the 

Act, and the CFPB now has that authority pursuant 

to the CFPA. 

198See 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 

term ‘‘credit card account under an open-end (not 

home-secured) consumer credit plan’’ in its 2010 

final rule. 

to offer covered overdraft credit. The 

expected costs and benefits of these 

changes are discussed in part VII below. 

The CFPB has also determined that it 

will not be impractical for institutions 

to comply with the separate account 

requirement in connection with 

overdrafts of small duration and amount 

because these characteristics have 

nothing to do with the cost of the 

separate account structure requirement. 

For example, many credit card 

purchases are of small dollar amounts. 

These small purchases simply get 

incremented to the credit card account 

balance at virtually zero marginal cost. 

At some later time, funds are transferred 

from the consumer’s asset account to 

repay the credit balance, again at 

virtually zero marginal cost. 

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 

(1) is a ‘‘credit card account under an 

open-end (not home-secured) consumer 

credit plan’’ under Regulation Z; or (2) 

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

‘‘charge card,’’ as those terms are 

defined 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, 

however, 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.’’ The CFPB proposed applying all 

credit card provisions generally to 

covered overdraft credit accounts if the 

credit account can be accessed by a 

hybrid debit-credit card, as defined in 

the proposal, namely a debit card 

offered by a very large financial 

institution. As discussed further below, 

the CFPB is finalizing these changes as 

proposed, such that the final rule 

applies all the credit card provisions to 

covered overdraft credit accounts if the 

credit account can be accessed by a 

hybrid debit-credit card. 

i. Applying CARD Act Provisions of 

Regulation Z To Covered Overdraft 

Credit 

The CFPB proposed subjecting all 

covered overdraft credit to the CARD 

Act provisions of Regulation Z in 

subparts B and G (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, a debit card that 

can access covered overdraft credit 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, the overdraft credit 

is not subject to the CARD Act 

provisions.196 The final rule subjects 

such credit to the CARD Act provisions 

when it is offered by very large financial 

institutions. To implement these 

changes, the rule adds a new definition 

of ‘‘hybrid debit-credit card,’’ amends 

the definitions of ‘‘credit card’’ and 

‘‘credit card account under an open-end 

(not home-secured) consumer credit 

plan,’’ and makes other clarifying 

changes to the rule text and associated 

commentary. 

Background on the CARD Act and 

Overdraft 

As discussed in the proposed rule, 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.197 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 applies 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.’’ 198 That term is 

defined in existing § 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 B 

and subpart G that were promulgated or 

amended to implement the CARD Act. 

Like the statutory definition, 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 B and subpart G that apply 

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

plan’’ because the Board adopted two 

non-statutory exceptions that exclude 

overdraft lines of credit from that 

definition. The exceptions in existing 

§ 1026.2(a)(15)(ii)(B) and (C), 

respectively, are (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 that can access a 

covered separate credit feature as 

defined in § 1026.61. Although 

Regulation Z does not explicitly 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 available in the 

asset account. 

Aside from the CARD Act provisions 

in subpart B and subpart G, 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. The existing 


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199See Regulation Z comment 2(a)(15)–2.i.B. 

200See 75 FR 7658, 7664 (Feb. 22, 2010). 

201 Id. 

202 Id. at 7665. 

203 Id. 

204See existing Regulation Z comment 2(a)(15)– 

2.i.B (stating that examples of credit cards include 

a debit card that also accesses a credit account). 

overdraft-related exclusion in 12 CFR 

1026.4(c)(3), which the CFPB is 

narrowing in this rulemaking, does not 

exclude overdraft products where ‘‘the 

payment of [overdrawing] items and the 

imposition of the charge were 

previously agreed upon in writing.’’ To 

the extent these overdraft line of credit 

products can be accessed by a debit card 

or other single credit device, the debit 

card or other single credit device is a 

‘‘credit card’’ and is generally subject to 

provisions in Regulation Z that apply to 

a ‘‘credit card.’’ 199

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.200 The Board also 

acknowledged that a debit card that 

accesses an overdraft line of credit is a 

‘‘credit card.’’ 201

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 B and subpart G 

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.202 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, over-the-limit 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.203

Hybrid Debit-Credit Card 

(§ 1026.62(b)(5)), Credit Card 

(§ 1026.2(a)(15)(i)), and Credit Card 

Account Under an Open-End (Not 

Home-Secured) Consumer Credit Plan 

(§ 1026.2(a)(15)(ii)) 

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

defining the new term ‘‘hybrid debitcredit card’’ for clarity and ease of 

reference. It also proposed amending the 

definition of ‘‘credit card’’ in 

§ 1026.2(a)(15)(i) and related 

commentary in 2(a)(15) to clarify what 

is and is not a credit card when certain 

credit devices can access covered 

overdraft credit. Under current 

Regulation Z, a debit card that can 

access an overdraft line of credit is a 

credit card.204 The CFPB also proposed 

amending the definition of ‘‘credit card 

account under an open-end (not homesecured) 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 B and 

subpart G. 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 

because it is above breakeven overdraft 

credit. 

Comments Received 

Various commenters provided general 

feedback on the application of the credit 

card provisions. With regard to adding 

a new definition of ‘‘hybrid debit-credit 

card,’’ and amending the definitions of 

‘‘credit card,’’ and ‘‘credit card account 

under an open-end (not home-secured) 

consumer credit plan,’’ several 

commenters, including consumer 

advocates as well as a trade group, 

wrote in support of these changes, with 

the consumer advocate commenters 

noting that the CFPB has authority 

under TILA and the CARD Act to make 

these changes, these changes are 

consistent with Regulation Z, and 

finance charges or four installments are 

not necessary for there to be a credit 

card. Some commenters, including a 

consumer advocate, a think tank, and a 

member of Congress, noted that debit 

cards that can access overdraft credit are 

credit cards under TILA and the CARD 

Act. At least one consumer advocate 

commenter also noted that the CFPB has 

the authority to bring all overdraft credit 

accessed through a device within the 

definition of credit card, regardless of 

the size of the fee or even the presence 

of any fee at all. These and other 

consumer advocate commenters support 

the CFPB eliminating the regulatory 

exceptions to bring the regulatory 

scheme closer to the plain meaning of 

the CARD Act, and to fulfill the 

consumer protection purposes of the 

CARD Act. 

Many industry commenters opposed 

the application of the credit card rules 

to overdrafts, stating that there would be 

additional costs, complexity, and risk 

involved for very large financial 

institutions offering above breakeven 

overdraft credit. Industry commenters 

said consumers would also be harmed 

because they would be denied overdraft 

credit because of the CARD Act 

requirements, would see the cost of 

their asset accounts go up due to the 

cost of the credit card provisions, and 

would be confused by receiving 

periodic disclosures under both 

Regulation Z and Regulation E. One 

noted that while stronger regulations for 

overdraft lines of credit are needed, 

regulatory flexibility in the application 

of the credit card rules also was needed 

so as not to stifle innovation. This 

commenter and consumer advocate 

commenters questioned whether certain 

credit card provisions should not apply 

to or should be more flexible for 

overdrafts. 

With regard to comments about using 

CFPB’s statutory authority to expand 

Regulation Z credit card coverage to 

overdrafts that would be non-covered 

overdrafts under the final rule, for the 

reasons discussed further above, the 

CFPB declines to do so. The CFPB 

recognizes that the credit card 

provisions may result in additional 

costs, complexity and risk to very large 

financial institutions depending on how 

a very large financial institution chooses 

to price and structure its overdraft credit 

in response to this rule. However, the 

CFPB has determined that the regulatory 

exceptions from the statutory credit card 

provisions 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 determined that the 

prevalence or nature of a particular type 

of credit card should not render it 


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205See CFPB 2017 Data Point at 16 tbl.2; see also 

CFPB 2014 Data Point at 12 (showing nonoverdrafters had a median credit score of 747, 

infrequent overdrafters had a median credit score of 

654, occasional overdrafters had a median credit 

score of 610, moderately frequent overdrafters had 

a median credit score of 585, and very frequent 

overdrafters had a median credit score of 563.) 

206See, e.g., CARD Act section 105, entitled 

‘‘Standards applicable to initial issuance of 

subprime or ‘fee harvester’ cards.’’ 

207See Regulation Z comment 5(a)(1)–2, 

Regulation E § 1005.4(b), and Regulation DD 

§ 1030.3(a). 208 15 U.S.C. 1602(l). 

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, includes 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 changes in this 

rule in several ways, including by 

offering covered overdraft lines of credit 

to many consumers who currently 

receive non-covered overdraft credit, 

including subprime consumers. 

Very large financial institutions could 

also react to this rule by offering 

covered overdraft credit on different 

terms than those that have historically 

been offered. 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 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, whom the 

CFPB has in the past referred to as 

‘‘frequent overdrafters,’’ incur most 

overdraft fees. In light of the final rule’s 

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 may have reduced incentive 

to provide non-covered overdraft credit 

to the frequent overdraft consumers who 

typically have lower credit scores 205

and today incur the preponderance of 

overdraft fees. Instead of providing 

these consumers with non-covered 

overdraft credit, some very large 

financial institutions may provide these 

consumers with covered overdraft credit 

accounts—the accounts to which the 

rule would 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 determined that 

applying the CARD Act provisions 

could provide important benefits to 

economically vulnerable consumers 

such as ‘‘subprime’’ consumers. Many of 

the provisions of the CARD Act target 

credit card practices affecting these 

consumers.206 To the extent that some 

financial institutions would offer 

covered overdraft credit to more 

economically vulnerable consumers in 

response to the final rule, 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 vulnerable consumer— 

receiving the same protections that a 

subprime credit card consumer receives 

today, consistent with the broad 

statutory language in the CARD Act. 

With respect to comments about 

possible consumer confusion due to 

consumers receiving both monthly 

credit account disclosures and monthly 

asset account disclosures, Regulations 

Z, E and DD permit the required 

disclosures to be combined in one 

communication as long as the 

disclosures comply with the regulatory 

requirements.207 As discussed further 

above, the addition of credit disclosures 

will further facilitate consumers’ 

understanding of the cost of overdraft 

credit. 

Final Rule 

To prevent the market for Regulation 

Z-covered overdraft from posing 

consumer risks after the rule goes into 

effect, 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 carry out the CARD 

Act pursuant to section 2 of the CARD 

Act, the final rule subjects all covered 

overdraft credit to the CARD Act 

provisions in subpart B and subpart G 

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

accessible by a credit card; and (3) 

offered by a very large financial 

institution. 

The final rule defines ‘‘hybrid debitcredit card’’ in § 1026.62 to mean 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. 

This 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. 

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.’’ 208 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 

‘‘a hybrid prepaid-credit card as defined 

in § 1026.61.’’ The final rule revises 

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

card that can access a covered overdraft 

credit account is a credit card. Thus, 

under the rule, 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. As noted, under the extant 

regulation a debit card that can access 

an overdraft line of credit is a credit 

card. Consistent with these changes and 

to clarify what is not a credit card, the 

final rule amends comments 2(a)(15)– 

2.i.B, 2(a)(15)–2.i.A, 2(a)(15)–2.ii.C, and 

2(a)(15)–2.ii.A and adds comment 

2(a)(15)–2.ii.E. As proposed, and under 

current law, the final rule clarifies in 

comment 2(a)(15)–2.ii.C 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. For example, if an institution 

permits a consumer to use the account 

number to initiate ACH transactions that 

can access credit to purchase goods and 

services, the account number is a credit 

card. This is so even if the institution 

declines the consumer’s debit card 

transactions that would access credit if 

authorized. 

The final rule also amends the 

definition of a ‘‘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 card-accessible openend 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 home-secured) 

consumer credit plan.’’ Such credit 

offered by a very large financial 

institution would be subject to the 

CARD Act provisions in subpart B and 

subpart G. 


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209See 12 CFR 1026.51(a)(1)(i). 

210 12 CFR 1026.51(a)(1)(ii). 

211 Id. 

212 Id. 

213See Regulation Z comment 51(a)(1)(i)–5; see 

also comments –4 and –6. 

214See Regulation Z comment 51(a)(1)(i)–4(ii). 

215Regulation Z comment 51(a)(1)(i)–7. 

216See 12 CFR 1026.51. 

217See 12 CFR 1026.51(a)(i) (stating that ‘‘[a] card 

issuer must not open a credit card account for a 

consumer under an open-end (not home-secured) 

consumer credit plan . . . unless the card issuer 

considers the consumer’s ability to make the 

Discussion of the Effect of Applying 

Regulation Z’s CARD Act Provisions To 

Covered Overdraft Credit Accounts 

Accessed by a Hybrid Debit-Credit Card 

The changes discussed above subject 

covered overdraft credit to the CARD 

Act provisions in subpart B and subpart 

G if that credit is accessible by a debit 

card and offered by a very large 

financial institution. In addition to the 

changes discussed above, the CFPB also 

proposed 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 proposed 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 proposed 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. The 

CFPB is finalizing those changes as 

proposed. 

As mentioned, various commenters 

provided general feedback on the 

application of the credit card 

provisions. A consumer advocate 

commenter noted its support and 

reasoning for applying each of the credit 

card provisions to hybrid debit-credit 

cards, including (but not limited to) 

provisions related to limitations on 

penalty fees (§ 1026.52(b)(1) and (b)(2)), 

the prohibition on increases in any APR, 

fee, or finance charge applicable to any 

outstanding balance on a credit card 

account (§ 1026.55), the requirement 

that card issuers reevaluate rate 

increases (§ 1026.59), and the 

requirement that institutions of higher 

education publicly disclose agreements 

with card issuers and limit the 

marketing of credit cards on or near 

college campuses (§ 1026.57). This 

commenter noted that other credit card 

provisions may not be applicable to 

debit cards that access overdraft credit 

as they are currently structured but that 

the provisions should apply as these 

cards or overdraft practices change. The 

commenter mentioned provisions 

including those regarding how a card 

issuer must allocate payments in excess 

of the minimum periodic payment 

(§ 1026.53), the limitation on card 

issuers imposing a finance charge as a 

result of the loss of a grace period 

(§ 1026.54), and the restriction 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 (§ 1026.56). 

To the extent that commenters 

provided substantive comments on 

specific credit card provisions, they are 

discussed below. 

Ability To Pay (§ 1026.51) 

The ability to pay requirement in 

§ 1026.51 requires assessment of the 

consumer’s ability to pay the credit 

extended, such as covered overdraft 

credit, based on the consumer’s income 

or assets and the consumer’s current 

obligations.209 It requires reasonable 

written policies and procedures to 

consider the consumer’s ability to make 

the required minimum payments under 

the terms of the account based on a 

consumer’s income or assets and a 

consumer’s current obligations.210

Reasonable policies and procedures also 

include consideration of at least one of 

the following: The ratio of debt 

obligations to income; the ratio of debt 

obligations to assets; or the income the 

consumer will have after paying debt 

obligations.211 It would be unreasonable 

for a card issuer not to review any 

information about a consumer’s income 

or assets and current obligations.212

With regards to sources of information 

about a consumer’s income or assets, the 

commentary states that the financial 

institution may consider information 

provided by the consumer in connection 

with the account, provided by the 

consumer in connection with any other 

financial relationship the card issuer or 

its affiliates have with the consumer, 

obtained through third parties, or 

obtained through any empirically 

derived, demonstrably and statistically 

sound model that reasonably estimates 

a consumer’s income or assets.213 The 

commentary also states that current or 

reasonably expected income also 

includes income that is deposited 

regularly into an account on which the 

consumer is an accountholder (e.g., an 

individual deposit account or joint 

account).214 With regard to sources of 

information about a consumer’s 

obligations, the commentary states that 

the financial institution may consider 

the consumer’s current obligations 

based on information provided by the 

consumer or in a consumer report.215

Some industry commenters, and an 

academic commenter, argued that 

applying the ability to pay provision to 

hybrid debit-credit cards would result 

in a pullback of overdraft credit for 

those consumers who need it the most. 

On the other hand, a consumer advocate 

commenter noted that the ability to pay 

requirement may be too weak and this 

minimal requirement would not result 

in consumers being denied overdraft 

credit. 

While the ability to pay requirement 

provides important protections, this 

requirement is flexible. It requires the 

ability to repay the required minimum 

periodic payments, and does not set 

mandatory minimum ratios, such as a 

minimum debt to income ratio.216

Furthermore, application of this 

provision will provide an incentive for 

financial institutions to structure and 

price covered overdraft credit such that 

consumers are better able to repay it, 

relative to current non-covered overdraft 

credit. To the extent that a consumer 

does not have the ability to repay 

covered overdraft credit, not extending 

overdraft credit to such a consumer is 

an important consumer protection 

because a consumer defaulting on the 

overdraft credit may mean losing their 

asset account. 

One industry commenter noted that it 

was impractical to comply with the 

ability to pay provision for an overdraft 

credit extension of short duration and 

small amount. Another industry 

commenter stated that conducting the 

ability to pay analysis before each pay/ 

no pay decision is unworkable. These 

comments appear to misunderstand the 

ability to pay requirement. This 

provision does not require an ability to 

pay analysis at the time of each 

transaction that may result in an 

extension of overdraft funds, just as it 

does not require an ability to pay 

analysis with each credit card 

transaction. Nor is the analysis based on 

the amount of time it actually takes the 

consumer to repay the transaction. In 

the credit card context, the ability to pay 

provision requires the ability to pay 

analysis to be conducted before the 

credit card account is opened, and the 

analysis be based on whether the 

consumer can make required minimum 

periodic payments.217 As such, the same 


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required minimum periodic payments . . . .’’ 

(emphasis added)). 

218The ability to pay analysis is also required 

prior to a credit line increase. See 12 CFR 

1026.51(a)(i). 

219See Regulation Z comments 51(a)(1)(i)–5 and 

–7. 

220See 12 CFR 1026.51(a)(1)(ii). 

221See 89 FR 90838 (Nov. 18, 2024). 

222 Id. 

223See Board’s Regulation Z final rule 

implementing the CARD Act, 75 FR 7658, 7724–25 

(Feb. 22, 2010) discussing this particular provision, 

stating ‘‘However, while new TILA Section 127(n) 

is titled ‘Standards Applicable to Initial Issuance of 

Subprime or ‘Fee Harvester’ Cards,’ nothing in the 

statutory text limits its application to a particular 

type of credit card. Instead . . . it appears that 

Congress intended Section 127(n) to apply to a 

broad range of fees regardless of the type of credit 

card account. Although the practice of charging fees 

that represent a high percentage of the credit limit 

is generally limited to subprime cards at present, it 

appears that Congress intended Section 127(n) to 

prevent this practice from spreading to other types 

of credit card products. Accordingly, although the 

Board understands that complying with Section 

127(n) may impose a significant burden on card 

issuers, the Board does not believe that this burden 

warrants a different interpretation of Section 

127(n).’’ 

ability to pay analysis is conducted in 

the context of the opening of a hybrid 

debit-credit card, which is in advance of 

any transaction requiring an extension 

of overdraft funds.218

Several industry commenters noted 

that it would cost time and money to 

perform an ability to pay analysis, 

which may include obtaining a credit 

report, asking a consumer for 

information about their income/assets 

and obligations, and obtaining other 

information on income and expenses for 

each customer account. Commenters 

also stated that there would be a 

reduction in the consumer’s credit score 

resulting from pulling the consumer’s 

credit report, and that consumers would 

be confused about being asked for debt 

and income information by an 

institution seeking to provide a 

consumer with covered overdraft credit 

when the consumer is opening a deposit 

account. An industry commenter and a 

consumer advocate commenter stated 

that a source of income/asset or 

obligation information may include 

transaction data from asset or others 

accounts that a financial institution may 

already have for the particular 

consumer. In addition, a nonprofit 

commenter asked that the CFPB clarify 

that underwriting based on transactions 

in asset accounts connected to overdraft 

lines of credit would satisfy the ability 

to pay requirement even if the creditor 

does not specifically identify obligations 

from the account. 

The ability to pay analysis is currently 

conducted for traditional credit cards. 

As such, consumers have familiarity 

with, and very large financial 

institutions that issue credit cards have 

policies and procedures to handle, the 

ability to pay process. The fact that asset 

account consumers may now go through 

the ability to pay process may underline 

for consumers that covered overdraft 

credit is a credit product and encourage 

comparison with other credit products 

and an intentional upfront decision 

whether to obtain overdraft credit. 

While there are costs associated with 

conducting an ability to pay analysis 

where a very large financial institution 

has not had to conduct such analysis, as 

some commenters noted, the ability to 

pay provision does not require the use 

of a credit report or the consumer as 

sources of information regarding 

income, assets, or obligations. The 

commentary lists sources of information 

that the financial institution may use 

but does not indicate that permissible 

sources are limited to those listed.219

For example, for income or asset 

information, comment 51(a)(1)(i)–4(ii) 

contemplates consideration of income 

that is being deposited regularly into an 

account on which the consumer is an 

accountholder (e.g., an individual 

deposit account or joint account). 

However, with any source of income, 

asset, or obligation information, 

Regulation Z requires that the financial 

institution have reasonable written 

policies and procedures in place to 

consider the consumer’s ability to 

pay.220 As such, the source of 

information must be reasonable. 

If the consumer’s asset account 

reflects the consumer’s income and 

expenses, such an asset account, alone, 

may be a reasonable source of 

information about the consumer’s 

income, assets, and obligations for the 

purpose of analyzing the consumer’s 

ability to make the required minimum 

payments under the terms of the hybrid 

debit-credit card. In this circumstance, a 

financial institution would not have to 

obtain a credit report or ask the 

consumer for this information. To 

comply with the ability to pay 

requirements, a financial institution 

could use this kind of transaction data 

from the accounts it maintains on behalf 

of the consumer, and/or it could use 

transaction data provided by a different 

financial institution if the consumer 

authorized its transmittal using the 

rights recently finalized in the Personal 

Financial Data Rights Rule.221 The 

ability to pay provision requires that the 

financial institution use this transaction 

data to consider the ratio of debt 

obligations to income, the ratio of debt 

obligations to assets, or the income the 

consumer will have after paying debt 

obligations.222

Limitation on Fees During First Year 

After Account Opening (§ 1026.52(a)) 

Section 1026.52(a) limits 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. An 

account is considered open no earlier 

than the date on which the account may 

first be used by the consumer to engage 

in transactions. 

One industry commenter opposed 

application of this provision, stating 

that this provision was meant for lowlimit high-fee credit cards and not for 

overdraft credit. This commenter along 

with an academic commenter stated that 

application to overdraft credit would 

make it difficult for financial 

institutions to offer overdraft credit to 

consumers who would not qualify for a 

high credit limit. A consumer advocate 

commenter wrote in support of applying 

this provision, noting that application of 

this provision would prevent high fees 

from consuming a large portion of the 

credit line and would likely result in 

financial institutions moving costs into 

the interest rate and hence the disclosed 

APR. This commenter asked for 

clarification that this provision applies 

to asset accounts that are more than one 

year old at the time of the effective date. 

It also asked that the CFPB extend the 

limitation to beyond one year for hybrid 

debit-credit cards. 

Regulation Z applies the first-year-fee 

limitation to all credit cards out of a 

concern that the practice of charging 

fees that are more than 25 percent of the 

credit limit would spread beyond 

subprime cards.223 To be consistent 

with other credit cards, the final rule 

also applies this limitation to hybrid 

debit-credit cards. 

With respect to concerns about credit 

availability for consumers who do not 

qualify for a high credit limit, the firstyear-fee limitation may provide an 

incentive for financial institutions to 

reduce or eliminate flat fees for 

overdraft and to instead apply periodic 

rates that must be disclosed as APRs. 

Doing so may improve consumers’ 

ability to understand the price of the 

overdraft credit, and to compare it to the 

pricing of other forms of credit that the 

consumers might wish to consider. 

With regard to when to start 

measuring the one year, the fee 

limitation applies starting no earlier 

than the date on which a credit card 


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224See 12 CFR 1026.52(a)(1). 

225CARD Act section 102, TILA section 149, 15 

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

226Regulation Z comment 52(b)–1. 

227 12 CFR 1026.52(b)(1)(i)–(ii). 

228Section 1026.52(b)(2) also bans the imposition 

of multiple fees for the same violation. 12 CFR 

1026.52(b)(2)(ii). 229Regulation Z comment 52(b)(2)(i)–4. 

account may first be used by a consumer 

to engage in transactions.224 The date on 

which an asset account is opened is not 

relevant to the determination of when a 

tied credit account may first be used by 

the consumer to engage in transactions. 

For asset accounts with debit cards in 

existence prior to the effective date of 

this final rule that include non-covered 

overdraft credit (but not covered 

overdraft credit), the one year period 

starts no earlier than when that debit 

card becomes a hybrid debit-credit card 

for the consumer. The debit card 

becomes a hybrid debit-credit card 

when the consumer may first engage in 

a transaction that accesses a tied 

covered overdraft credit account. 

For example, assume that prior to the 

effective date of the CFPB’s rule, a very 

large financial institution provides noncovered overdraft credit that is 

considered above breakeven debit card 

overdraft credit. Assume further that the 

institution seeks to continue to provide 

the consumer above breakeven overdraft 

credit via the card subsequent to the 

effective date. Because such debit card 

will legally be a hybrid debit-credit card 

on the effective date of this rule, to 

charge above breakeven overdraft fees 

beyond that date, the institution must 

comply with the Regulation Z credit 

card requirements, including the fee 

limitation requirement for one year from 

the date of credit card account opening. 

However, if prior to the effective date of 

the CFPB’s rule a very large financial 

institution is providing a covered 

overdraft credit account—i.e., an 

overdraft line of credit—accessible by a 

credit card, such institution would not 

be required to comply with the credit 

account opening requirements (e.g., 

account opening disclosures, the ability 

to pay requirement, and the limitation 

on fees during the first year after 

account opening) solely because this 

rule goes into effect, as discussed in the 

Effective Date section below. 

Nonetheless, the institution must 

comply with ongoing credit account 

requirements (e.g., the requirements that 

the ability to pay analysis be conducted 

prior to a credit line increase, that the 

payment due date be the same each 

month, that disclosures be delivered 21 

days before due date, and that card 

agreements be submitted to the CFPB on 

a quarterly basis). 

The CFPB does not currently see a 

reason to introduce inconsistency into 

the credit card provisions by applying 

this limitation on fees beyond one year 

from credit card account opening for 

hybrid debit-credit cards. 

Limitations on Penalty Fees 

(§ 1026.52(b)) 

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.’’ 225 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.’’ 226 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.227 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.228 In particular, 

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

charged in connection with a credit card 

account for a ‘‘transaction that a card 

issuer declines to authorize.’’ As a result 

of this overdraft rule, the CARD Act’s 

penalty fee provision will prohibit fees 

for declined transactions when a very 

large financial institution provides a 

covered overdraft credit account that is 

accessible by a hybrid debit-credit card 

or other credit card—i.e., a credit card 

account. 

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 

determined that a fee imposed when a 

potentially overdrafting transaction is 

declined, such as a nonsufficient funds 

(NSF) fee, is a penalty fee. 

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 or other 

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.’’ 229 The CFPB has determined 

that applying § 1026.52(b) to a covered 

overdraft 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 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 that 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 

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. Nonetheless, the CFPB 

is not at this time reconsidering the 

Board’s prior decision to permit some 

amount of a fee in connection with 


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230 15 U.S.C. 1642. 

declining to pay a check that accesses a 

credit card account. This rule applies 

the same approach to checks issued in 

connection with a covered asset account 

tied to a covered overdraft credit 

account accessible by a hybrid debitcredit card. 

Only one commenter provided 

comment on this provision, and did so 

in support of its application to a covered 

overdraft credit account accessed by a 

hybrid debit-credit card. After 

considering the comments and the 

factors in 15 U.S.C. 1665d(c), the CFPB 

is not amending § 1026.52(b) and is 

finalizing the rule to apply § 1026.52(b) 

to covered overdraft credit accounts 

accessed by hybrid debit-credit cards. 

Submission of Card Agreements 

(§ 1026.58) 

Section 1026.58 requires financial 

institutions to submit credit card 

agreements to the CFPB on a quarterly 

basis. An industry commenter 

questioned whether including covered 

overdraft credit account agreements in a 

credit card account agreement database 

would create more confusion than 

value. On the other hand, a consumer 

advocate commenter stated that 

collecting the agreements and making 

them public would promote 

transparency and a better understanding 

of the hybrid debit-credit card market. 

For consistency with other credit cards 

and for transparency to the benefit of 

consumers, the CFPB has determined to 

apply this provision to covered 

overdraft credit accounts accessible by 

hybrid debit-credit cards. 

Disclosure-Related Requirements 

The CARD Act also applies special 

rules to disclosure-related requirements 

in subpart B and subpart G with respect 

to covered overdraft credit accounts 

accessed by a hybrid debit-credit card. 

These provisions include disclosure 

requirements for account opening 

disclosures (§ 1026.6(b)), periodic 

statements (§ 1026.7(b)), and timing for 

disclosures (§ 1026.5(b)). 

One industry commenter suggested 

that the CFPB consider whether all 

credit card-specific disclosure 

requirements are appropriate for 

overdraft lines of credit or whether 

exceptions or modifications are 

appropriate. Another industry 

commenter said that calculating the 

APR for each overdraft fee would be 

impractical for an overdraft fee of short 

duration and small amount, apparently 

inaccurately assuming that, under 

Regulation Z, the APR for open-end 

credit includes charges other than the 

periodic rate. A consumer advocate 

commenter supported application of the 

solicitation and application disclosure 

requirements to hybrid debit-credit 

cards to promote meaningful and 

uniform disclosure of credit terms. 

The CFPB has determined that 

Regulation Z and its commentary 

provide sufficient flexibility and 

instructions for a financial institution to 

meet the disclosure requirements in a 

manner appropriate for the particular 

credit card product the institution is 

offering. Regulation Z subpart B and 

subpart G, the related commentary, and 

the appendix G model and sample 

disclosures provide extensive 

instructions and guidance on the 

disclosure requirements. As such, 

modifications or exceptions to the 

disclosure requirements for hybrid 

debit-credit cards and additional 

guidance for complying with the 

requirements are not necessary. 

Consistency in the credit card 

disclosure requirements, including the 

APR and fee disclosures, will assist 

consumers in comparing the cost of 

various credit cards and various credit 

products. 

Section 1026.7(b)(11) requires that the 

payment due date be the same day of 

the month for each billing cycle. As 

such the interval between due dates can 

be no shorter than monthly. In addition, 

§ 1026.5(b)(2)(ii) requires that periodic 

statements be mailed or delivered at 

least 21 days prior to the payment due 

date disclosed on the periodic 

statement. One industry commenter 

noted that application of these 

requirements and the offset prohibition 

increase the credit risk to financial 

institutions of offering overdraft credit. 

Another industry commenter suggested 

that payments for small dollar lines of 

credit be permitted to be scheduled biweekly or semi-monthly and for the 

repayment period to be less than 21 

days after a statement is delivered or 

mailed. On the other hand, a consumer 

advocate commenter supported 

application of the existing repayment 

requirement at 21 days and same-day 

due date each month (as well as the 

offset prohibition) because it would give 

consumers a reasonable time period to 

pay their hybrid debit-credit card and 

give the consumers certainty on their 

payment due date for budgeting 

purposes. 

The CFPB has determined that a 

special exception to the credit card 

timing requirements for billing cycles, 

periodic statements, and due dates is 

not warranted for covered overdraft 

credit accounts accessed by hybrid 

debit-credit cards. Hybrid debit-credit 

card consumers should have these same 

consumer protections as other credit 

card consumers. 

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, the liability 

of cardholders for unauthorized use, 

cardholder rights to assert against the 

card issuer claims and defenses that the 

cardholder has against the merchant, 

and the prohibition on offsets by 

issuers. Existing § 1026.12(a) and (b) are 

exceptions to the general rule that 

Regulation Z applies only to consumer 

credit. The CFPB did not propose to 

change the regulatory text of existing 

§ 1026.12. 

However, the CFPB proposed to revise 

comment 12–1 on the scope of § 1026.12 

to clarify that the provisions of 

§ 1026.12 relating to card issuance and 

liability apply to hybrid debit-credit 

cards. Specifically, the CFPB proposed 

to 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) of 

§ 1026.12. Paragraph (g) addresses 

whether Regulation Z or Regulation E 

controls in instances where a 

transaction involves both credit and 

electronic fund transfer aspects. 

The CFPB received few comments on 

the proposed changes to § 1026.12 and 

its commentary and no comments 

indicating a need to adjust the proposed 

language in comment 12–1. A consumer 

advocate commenter supported the 

revised comment, stating that the 

attendant protections are equally 

important for consumers who use 

overdraft credit on hybrid debit-credit 

cards. Therefore, for the reasons 

discussed in the proposal and above, the 

CFPB is finalizing comment 12–1 as 

proposed but with the addition of a cite 

to the definition of hybrid debit-credit 

cards, for convenience. Proposed 

changes to 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) are discussed below. 

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.230

Section 1026.12(a) of Regulation Z 

implements TILA section 132 and 


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231 15 U.S.C. 1666i. 

232 46 FR 20848, 20865 (Apr. 7, 1981). 

provides that regardless 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 CFPB did not propose changes to 

the existing regulatory text for 

§ 1026.12(a). It did, however, propose 

certain revisions to related commentary 

to clarify how the prohibition on issuing 

unsolicited credit cards applies to 

hybrid debit-credit cards. 

Clarifications to Explicit Request 

Requirement (§ 1026.12(a)(1)) 

As discussed above, under the 

proposal and as finalized in this rule, a 

hybrid debit-credit card is a credit card 

that a consumer may use from time to 

time to obtain covered overdraft credit 

from a very large financial institution. 

To the extent that covered overdraft 

credit from a very large financial 

institution would be accessible through 

a hybrid debit-credit card, a request for 

such credit would constitute an 

application for a credit card with 

overdraft features. Therefore, the 

prohibition set forth in § 1026.12(a)(1) 

on issuing a credit card except in 

response to an oral or written request or 

application for the card applies to 

hybrid debit-credit cards. 

Existing comment 12(a)(1)–1 states 

that the 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. The CFPB 

proposed to revise comment 12(a)(1)–1 

to clarify that a very large financial 

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

receiving an oral or written request or 

application from that person for the 

hybrid debit-credit card. 

A consumer advocate commenter 

supported the proposed clarification, 

stating that it promotes TILA’s purposes 

of ensuring the informed use of credit 

and prevents creditors from pushing on 

people credit that they may not want. 

The commenter further asserted that 

unwanted or unsolicited credit could 

lead to problems managing finances, 

damage to credit reports, debt collection 

harassment, and other harms, and that 

ensuring the informed and desired use 

of overdraft credit is important for 

hybrid debit-credit cards just as it is for 

other credit cards. 

For the same reasons, the consumer 

advocate commenter supported the 

changes the CFPB proposed to existing 

comment 12(a)(1)–2, which explains 

that the addition of a credit feature or 

plan to a non-credit card that would 

turn that card into a credit card under 

§ 1026.2(a)(15)(i) constitutes issuance of 

a credit card. The commenter further 

noted that consumers should not have 

overdraft credit features added to their 

asset accounts without their request. 

Comment 12(a)(1)–2 currently provides 

two examples of when the addition of 

credit features constitutes issuance of a 

credit card. Proposed comment 12(a)(1)– 

2.iii set out the scenario of extending 

covered overdraft credit through a 

hybrid debit-credit card as a third 

example of an action that would 

constitute issuance of a credit card. 

Because the clarification promotes 

TILA’s purposes of ensuring the 

informed use of credit and for the 

reasons discussed above, the CFPB is 

finalizing the proposed changes to the 

commentary for paragraph 12(a)(1) with 

only nonsubstantive changes. As 

explained in the proposed rule, 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 illustration, 

the debit card would convert into a 

hybrid debit-credit card that is a credit 

card under § 1026.2(a)(15)(i) and is 

subject to the issuance limitations in 

§ 1026.12(a). 

Clarifications to Replacement Card 

Requirements (§ 1026.12(a)(2)) 

As an additional exception to the 

general prohibition on the unsolicited 

issuance of a credit card, § 1026.12(a)(2) 

allows the issuance of a credit card to 

a person when the card is issued as a 

renewal of, or substitute for, an already 

accepted credit card. Existing 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 currently provides 

three exceptions to the one-for-one rule. 

In particular, existing 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 single card that is both a debit card 

and a credit card with a credit card and 

separate card with only debit functions 

(or debit functions plus an associated 

overdraft capability), since the card with 

only debit functions could be issued on 

an unsolicited basis under Regulation E. 

The CFPB proposed to revise 

comment 12(a)(2)–6.i in two respects. 

First, a revision would add a 

clarification that a hybrid debit-credit 

card is an example of a single card that 

is both a debit card and a credit card. 

Second, language in an existing 

parenthetical that addresses debit 

functions and associated access to 

overdraft credit would be revised to 

align terminology relating to overdraft 

credit across Regulation Z, in light of 

the proposed amendments. Specifically, 

the CFPB proposed to remove the 

phrase ‘‘an associated overdraft 

capability’’ 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 revision to the 

terminology in the parenthetical would 

not change how the provision applies to 

card issuers. Rather, the purpose of 

these proposed revisions 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). 

The CFPB received no comments on 

the proposed revision of comment 

12(a)(2)–6.i and, because the 

clarification promotes TILA’s purposes 

of ensuring the informed use of credit, 

is finalizing the revision as proposed. 

The CFPB did not propose, and has not 

made, changes to the two other existing 

exceptions to the one-for-one rule in 

comments 12(a)(2)–6.ii and –6.iii. 

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.231 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.232 This 


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233Public Law 100–583, 102 Stat. 2960 (Nov. 3, 

1988). 

234 54 FR 13855, 13856–57 (Apr. 6, 1989). 

exception is in existing comment 12(c)– 

3. 

As discussed above, the CFPB 

proposed to update exceptions in 

Regulation Z and thus increase 

consumer protections that apply to 

covered overdraft credit offered by very 

large financial institutions. Accordingly, 

the CFPB proposed to narrow the 

overdraft exception in comment 12(c)– 

3 such that a ‘‘hybrid debit-credit card’’ 

would be covered by the consumer 

protections in § 1026.12(c). As 

discussed above, under § 1026.62(b)(5) a 

‘‘hybrid debit-credit card’’ includes a 

debit card that a consumer may use 

from time to time to obtain covered 

overdraft credit from a very large 

financial institution. The CFPB further 

proposed conforming revisions to the 

commentary for § 1026.12(c)(1). 

The CFPB received few comments on 

the proposal to apply the consumer 

protections in § 1026.12(c) to hybrid 

debit-credit cards. A consumer advocate 

commenter supported the proposal and 

stated that these consumer protections 

are important whether the payment is 

made by a credit card drawing on 

overdraft credit or on other credit. The 

commenter asserted that these consumer 

protections give card issuers greater 

incentive to vet and monitor the 

merchants who they authorize to accept 

their cards because it makes the card 

issuers more accountable for the 

merchants’ conduct. The commenter 

further asserted that both credit and 

debit cards are issued on the same major 

networks and vetting and monitoring of 

the merchants that card issuers 

authorize to accept their cards already 

takes place and applies to both debit 

and credit cards. The commenter stated 

that the existing exception for hybrid 

debit-credit cards in comment 12(c)–3 is 

not in the TILA statute and the CFPB 

has the authority to remove or narrow 

the exception. The commenter further 

stated that, while the Board noted 

operational problems cited by 

commenters in 1981 when the Board 

added the exception in existing 

comment 12(c)–3, card issuers— 

particularly very large financial 

institutions covered by the definition of 

‘‘hybrid debit-credit card’’—have far 

greater technology and resources today 

to address operational issues than they 

did over 40 years ago. 

A nonprofit commenter suggested 

without explanation that a § 1026.12(c) 

exception for hybrid debit-credit cards 

could provide room for innovative and 

affordable small dollar overdraft line of 

credit products. 

For the reasons stated below, the 

CFPB is finalizing comment 12(c)–3, as 

well as the conforming revisions to the 

commentary for § 1026.12(c)(1), as 

proposed. Consistent with TILA, the 

CFPB has determined that the consumer 

protections in § 1026.12(c) are important 

whether a credit card accesses covered 

overdraft credit or another type of credit 

from a very large financial institution. 

Moreover, the CFPB has determined that 

the rule provides room for innovative 

and affordable overdraft credit and that 

operational concerns alluded to by the 

Board in 1981 no longer justify the 

overdraft exception that the Board 

added in comment 12(c)–3, particularly 

for very large financial institutions, 

given advances in information 

technology systems over the last 40 

years. The existing exception would not 

change for financial institutions with 

total assets of $10 billion or less. 

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 CFPB proposed 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 defining 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. 

For the reasons stated below, the 

CFPB is finalizing the changes to 

§ 1026.60 as proposed. 

Comments Received 

As discussed in the disclosure-related 

requirements discussion in the CARD 

Act section above, the CFPB received 

several comments about the application 

of disclosure-related requirements to 

covered overdraft credit that can be 

accessed by a hybrid debit-credit card. 

With respect to § 1026.60, for example, 

an industry commenter said that more 

guidance is needed. For example, this 

industry commenter noted that many of 

the APR and fee disclosures would 

show ‘‘$0’’ for all except the overdraft 

fee. The commenter noted that the 

commentary states that disclosures need 

only be given as applicable but the 

proposed rule did not state how 

financial institutions should adapt the 

forms for overdraft credit. 

Final Rule 

For the reasons discussed below, the 

CFPB is finalizing amendments to 

§ 1026.60 as proposed. The 

requirements in § 1026.60 implement 

provisions of the Fair Credit and Charge 

Card Disclosure Act of 1988.233 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 open-end 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.234

The CFPB has determined that, as 

with the CARD Act provisions, covered 

overdraft offered by a very large 

financial institution that is accessible by 

a hybrid debit-credit 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 


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235 15 U.S.C. 1637(c)(4)(E). 

236See Public Law 100–583, sec. 2, 102 Stat. 2960 

(Nov. 3, 1988). 

237 54 FR 13855, 13856 (Apr. 4, 1989). 

238See § 1026.7(b)(11)(ii)(A); see also 75 FR 7658, 

7672–73 (Feb. 22, 2010). 

239See 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. 

240See CFPB 2017 Data Point at 6. 

241 15 U.S.C. 1693k(1). 

242 46 FR 2972 (Jan. 13, 1981). 

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 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. 

As noted in the discussion of the 

CARD Act disclosure requirements 

above, with respect to comments that 

more guidance is needed, the CFPB 

reviewed the credit card disclosure 

requirements and determined that 

Regulation Z and its staff commentary 

provide sufficient flexibility and 

instructions for a financial institution to 

meet the disclosure requirements in a 

manner appropriate for the particular 

credit card product the institution is 

offering. As one of the industry 

commenters accurately noted, for 

§ 1026.60’s application and solicitation 

disclosures, comment 60(a)(2)–4 states 

that generally, disclosures need only be 

given as applicable. In addition, 

Regulation Z subpart B and subpart G, 

the related staff commentary, and 

appendix G model and sample 

disclosures provide extensive 

instructions and guidance on the 

disclosure requirements. As such, 

modifications or exceptions to the 

disclosure requirements for hybrid 

debit-credit cards and additional 

guidance for complying with the 

requirements are not necessary. 

Consistency in the credit card 

disclosure requirements, including the 

APR and fee disclosures, will assist 

consumers in comparing the cost of 

various credit cards and various credit 

products. 

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

The CFPB proposed 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 proposed the amendment 

because it preliminarily determined that 

consumers using hybrid debit-credit 

cards would benefit from the TILA and 

Regulation Z provisions that apply to 

credit cards generally. 

The CFPB did not receive any 

comments on the proposed change to 

the definition of charge card and is 

finalizing this definition as proposed for 

the reasons stated below. 

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.’’ 235 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).236 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.237 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 generally 

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.238 The CFPB 

has 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 

excluding hybrid debit-credit cards from 

the Regulation Z definition of charge 

card. This approach is consistent with 

TILA; in applying 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 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.239 In contrast, 

current users of non-covered overdraft 

credit often are lower-income 

consumers with lower credit scores.240

Subsequent to the CFPB’s proposal, 

many of these consumers may be offered 

hybrid debit-credit cards, which will 

access covered overdraft credit that 

typically will be subject to finance 

charges, and therefore do not fit the 

statutory definition of a ‘‘charge card.’’ 

Accordingly, consistent with TILA, and 

to ensure that consumers who use 

covered overdraft credit benefit from the 

full protection of the Regulation Z credit 

card rules, the CFPB is amending the 

regulatory definition of ‘‘charge card’’ 

such that a ‘hybrid debit-credit card’ 

will not be within the credit card subset 

‘‘charge card’’ but will nonetheless 

remain in the larger set ‘‘credit card.’’ 

This will ensure that a hybrid debitcredit card that accesses covered 

overdraft credit offered by a very large 

financial institution will be subject to 

the same disclosure and other rules as 

other credit cards, including the 

§ 1026.7(b)(11) requirements discussed 

above. 

3. Compulsory Use of Preauthorized 

Transfers (§ 1005.10(e)(1)) 

The CFPB proposed to apply the 

Regulation E compulsory use 

prohibition to covered overdraft credit 

extended by very large financial 

institutions. 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.241 However, the 

Board in 1981 adopted in Regulation E 

§ 1005.10(e)(1) a non-statutory 

exception to that prohibition for 

overdraft credit plans.242 The CFPB 

proposed to eliminate that exception 

when covered overdraft credit is 

provided by a very large financial 


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institution. As a result, a very large 

financial institution providing covered 

overdraft credit 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 an 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. For 

the reasons discussed below, the CFPB 

is finalizing as proposed the application 

of the compulsory use prohibition to 

covered overdraft credit extended by 

very large financial institutions. 

Many industry commenters opposed 

the CFPB’s proposal. They argued that 

the requirement to offer consumers a 

repayment option other than automatic 

repayment would impose costs that 

would not have commensurate 

consumer benefit. Specifically, they 

argued that the requirement would 

result in one-time costs to implement an 

alternative repayment method and a 

process for obtaining consumers’ 

decisions whether to use automatic 

repayment or the alternative, and 

ongoing costs of maintaining the 

alternative and handling the higher 

costs associated with those consumers 

who choose the alternative, including 

the cost of higher risk of non-repayment. 

They asserted that if institutions cannot 

guarantee themselves the repayment 

method of automatic transfers, the result 

would be a higher underwriting bar than 

is currently in place. They also asserted 

that these costs would not result in any 

material consumer benefit because 

almost all consumers will choose 

automatic repayment. Further, they 

stated, it is appropriate for consumers to 

choose automatic repayment because it 

ensures consumers do not miss 

repayments and thereby incur 

concomitant costs such as late fees and 

higher interest rates. 

Many consumer advocate commenters 

supported the CFPB’s proposal. They 

argued that improvements in technology 

have reduced institutions’ costs 

associated with providing alternative 

means of repayment and that any costs 

in this area have not inhibited the credit 

card market (where the compulsory use 

prohibition has long applied). They also 

stated that the requirement would 

benefit consumers by improving their 

control over their funds. Further, they 

stated, any increased risk of nonrepayment would appropriately 

incentivize institutions to offer overdraft 

credit that is affordable. 

The CFPB has determined that 

advances in information technology in 

the decades since the Board’s 1981 

adoption of 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—repayment of 

a monthly credit balance. 

For similar reasons, the CFPB has also 

determined that application of the 

prohibition will not inappropriately 

increase institutions’ risk of 

nonrepayment. Specifically, the CFPB 

finds that technology makes it virtually 

costless for institutions to remind 

consumers of their repayment 

obligation, such as through app 

notifications on smartphones as well as 

text and email messages. The CFPB also 

finds that technology makes it virtually 

costless for consumers to act in response 

to those notifications, such as by 

clicking on a notification and then 

making one or a few clicks (depending 

on the details of the repayment process 

the institution establishes) to specify the 

amount to repay, identify the funding 

source, and initiate the repayment. This 

ease of notification and consumer 

response helps increase the likelihood 

that those who can repay the credit will 

do so. As a result, any increased 

nonrepayment risk to institutions 

resulting from application of the 

compulsory use prohibition will serve 

as an appropriate incentive to 

institutions to offer covered overdraft 

credit to those consumers who can and 

will repay it, i.e., to offer covered 

overdraft credit to those consumers who 

will not be harmed by it. 

For these reasons, the CFPB has 

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 EFT systems. This 

determination is consistent with 

Congress’s original intent in adopting 

the prohibition. 

Offset Prohibition in 12 CFR 

1026.12(d)(1) 

While the CFPB did not propose to 

amend the Regulation Z prohibition 

against offset, it is closely related to the 

Regulation E compulsory use 

prohibition discussed above. Further, 

commenters provided feedback on 

application of the offset prohibition. 

Below the CFPB summarizes the 

substance of the prohibition and 

addresses the comments that the CFPB 

received. 

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

practice whereby an 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 outstanding 

overdraft balance in the asset account. 

TILA and Regulation Z prohibit that 

practice with respect to credit card 

accounts. Specifically, TILA section 

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

1026.12(d)(1) prohibit an institution 

from using funds in a consumer’s asset 

account at the institution to offset 

consumer debt arising from a credit card 

plan the institution provides to the 

consumer. Thus, when a financial 

institution ties a consumer’s asset 

account (i.e., a covered asset account) to 

covered overdraft credit accessible by 

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

card), the institution may not use funds 

in the consumer’s asset account to offset 

the consumer’s overdraft credit balance. 

Periodic deductions are a different 

practice than offset. TILA section 

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

an institution 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), 

which the CFPB did not propose to 

amend. Thus, when a very large 

financial institution provides covered 

overdraft credit that is accessible by a 

card, the institution must comply with 

the offset prohibition, 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. Pursuant to the Regulation E 

compulsory use prohibition (discussed 

above), the institution must also provide 

the consumer with a repayment option 

other than periodic deduction. 

Many industry commenters opposed 

application of the offset prohibition. 

They argued that the offset prohibition 

would increase risk of nonrepayment 

and result in higher underwriting 

standards relative to institutions’ 

standards today for non-covered 

overdraft credit, thereby eliminating 

access to overdraft credit for those 

subprime or deeply subprime 

consumers (or those without any credit 

history) who use it today. As a result, 

they argued, these consumers would 

have no choice but to use alternative 

credit products such as payday loans. 


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243 15 U.S.C. 1604(d). 

244Whether the debit card number must change 

under these circumstances is not governed by the 

CFPB under any of its rules. 

Many consumer advocate commenters 

supported application of the offset 

prohibition. They observed that 

Congress adopted the prohibition 

because it was concerned about an 

institution’s power to collect credit card 

debt by offsetting against money in a 

consumer’s asset account at the 

institution, thereby causing other 

consumer payments from the account to 

go unpaid. They argued that the same 

concerns apply to covered overdraft 

credit, i.e., that an institution’s offset of 

overdraft credit reduces a consumer’s 

ability to prioritize which obligations to 

repay and can cause consumer 

obligations other than overdraft to go 

unpaid. Consumer advocates argued 

that that effect is exacerbated by the 

high fees that typically accompany 

overdraft credit, because those fees 

increase the loss of consumer control 

and the amount that is offset and thus 

the amount of other consumer 

obligations that go unpaid. In light of 

these current consumer harms and costs 

from overdraft credit, consumer 

advocates supported higher 

underwriting standards for overdraft 

credit relative to today. 

The CFPB has determined that 

application of the offset prohibition to 

above breakeven overdraft credit 

provided by very large financial 

institutions will serve the consumer 

protection purposes for which Congress 

adopted the prohibition (avoiding the 

uninformed use of credit and protecting 

consumers against inaccurate and unfair 

credit billing and credit card practices). 

To the extent the prohibition increases 

risk of nonrepayment and thereby 

causes institutions to decline some 

overdraft credit transactions that they 

currently authorize, the CFPB finds that 

these changes will not result in lost 

benefit for many of the consumers who 

use overdraft credit today, because the 

credit is often of little or no benefit for 

these consumers. Further, many of these 

consumers will be able to find other 

forms of consumer credit (should they 

think it necessary to do so). In sum, 

when a hybrid debit-credit card can 

access covered overdraft credit, the card 

is a type of credit card and the CFPB 

finds that consumers using such a card 

should receive the same TILA 

protections, including those of the offset 

prohibition, that any other credit card 

consumer receives. 

Defining ‘‘Periodically’’ 

The CFPB requested comment on 

whether 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. 

The CFPB received very few comments 

and no specific information in response. 

The CFPB is not taking any action at 

this time pursuant to this request for 

comment. The CFPB notes that 

§ 1026.7(b)(11) requires the payment 

due date for credit card accounts under 

an open-end (not home-secured) 

consumer credit plan to be the same 

every month. 

4. Definition of Overdraft Services in 

Regulation E (§ 1005.17(a)) 

The CFPB proposed to add comment 

17(a)–2 to clarify that the added defined 

terms in Regulation Z regarding covered 

overdraft credit do not change the scope 

of the definition of overdraft services 

under Regulation E § 1005.17(a). The 

proposed comment clarified 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. 

Very few commenters addressed this 

aspect of the CFPB’s proposal and those 

that did supported it. The CFPB adopts 

comment 17(a)–2 as proposed. 

V. Effective and Compliance Date 

Consistent with TILA section 105(d), 

the CFPB proposed that the final rule 

have an effective date of the October 1 

that follows by at least six months the 

date it is published in the Federal 

Register.243 The CFPB sought comment 

on the proposed effective date including 

whether such date should be different, 

and if so, when and why. For the 

reasons discussed below, the effective 

date is finalized as proposed. As a 

result, this rule will become effective on 

October 1, 2025. 

Consumer advocates generally 

supported the proposed effective date. 

Industry commenters opposed the 

effective date because they stated it 

would not be sufficient time to 

implement required changes, 

particularly with respect to covered 

overdraft credit. They stated that they 

would need anywhere from 12 to 24 

months to comply with the rule. These 

commenters explained that the rule 

would require a comprehensive review 

and restructuring of every aspect of their 

overdraft programs, from operations to 

technology to customer service. One 

commenter stated that it will need to 

perform an impact analysis to determine 

how to change its programs and then 

implement those changes, which will 

require working with third party 

vendors, training employees, testing, 

and communicating changes to 

consumers. With respect to 

communicating changes to consumers, 

the commenter stated that a change in 

terms notice is unlikely to be sufficient 

and it would need to engage in an 

extended campaign to inform 

consumers about the changes and 

effects. One industry commenter noted 

that for existing debit cards on asset 

accounts, institutions would need to 

determine whether to continue offering 

debit cards on overdraft credit, 

informing their consumers about the 

change in card status, giving consumers 

time to accept the new card status, and 

possibly changing the card number.244

As discussed further above, the 

CFPB’s rule would apply only to very 

large financial institutions. Accordingly, 

financial institutions that are not very 

large financial institutions would not 

need to make any changes in response 

to the rule. 

With respect to very large financial 

institutions, the changes that the rule 

would require vary depending on the 

institution’s current activities. If a very 

large financial institution already offers 

non-covered overdraft services in 

compliance with existing regulations 

and, in response to the rule, chooses 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 the rule’s 

breakeven standard provisions if the 

financial institution chooses to use that 

method. Alternatively, using the $5 

benchmark may further simplify 

compliance with the rule. If a financial 

institution needs extra time to convert 

to the breakeven method, they could 

charge $5 fees on October 1, 2025, and 

then convert to the breakeven amount at 

its own pace. 

If a very large financial institution 

currently offers non-covered overdraft 

services in compliance with existing 

regulations, and, in response to the rule, 

chooses to provide above breakeven 

overdraft credit, it would need to ensure 

that such credit complies with 

Regulation Z. If the very large financial 

institution is unable to bring to market 

by the rule’s effective date an above 

breakeven overdraft credit program that 

complies with Regulation Z, including 

the credit card rules, the institution still 

could comply with the rule by charging 

breakeven or $5 overdraft fees in the 

interim. 

If a very large financial institution 

currently offers covered overdraft credit 


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245The ability to pay analysis is also required 

prior to a credit line increase. See 12 CFR 

1026.51(a)(i). This requirement is applicable upon 

the effective date of the rule. 

246As noted, if a very large financial institution 

currently provides overdraft lines of credit in 

compliance with Regulation Z and chooses to 

continue providing them after the effective date (at 

which point the lines would be covered overdraft 

credit accounts), the institution would need to 

begin to provide consumers a repayment option 

other than preauthorized EFTs. For overdraft lines 

of credit (i.e., covered overdraft credit accounts) 

extant as of the effective date where agreements are 

in place for preauthorized EFTs, beginning to 

provide the option would not trigger change-interms notice requirements under § 1026.9(c)(2) or 

§ 1005.8(a)(1). However, when a card issuer opens 

a covered overdraft credit account on or after the 

effective date, section 1026.12(d)(3) requires the 

card issuer to clearly disclose the fact that the 

option exists. See comment 12(d)(3)–1.iii. 

247See FRS, The Federal Reserve Payments 

Study: 2022 Triennial Initial Data Release, https:// 

www.federalreserve.gov/paymentsystems/2023- 

April-The-Federal-Reserve-Payments-Study.htm 

(last updated Nov. 13, 2024). There were 18.1 

billion check payments in the U.S. in 2015, 14.0 

billion in 2018, and 11.2 billion in 2021. 

in compliance with Regulation Z and, in 

response to the rule, chooses to 

continue offering such credit, the very 

large financial institution would need to 

comply with the rule by: (1) beginning 

to comply with the newly applicable 

Regulation Z provisions including, if 

applicable, changes to the examples of 

finance charges and the credit card 

provisions that would newly apply to 

certain types of covered overdraft credit; 

and (2) offering consumers a means of 

repaying their overdrafts other than by 

preauthorized EFTs. 

Many very large financial institutions 

currently provide overdraft lines of 

credit subject to Regulation Z. 

Subsequent to the effective date of the 

rule, these lines of credit would be 

covered overdraft credit accounts, 

regardless of whether they are above or 

below breakeven pricing. However, 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 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.245 However, other Regulation Z 

requirements such as change-in-terms 

requirements would continue to apply 

to them.246

In general, financial institution 

commenters were more concerned about 

implementing the rule where they do 

not currently provide covered overdraft 

credit accounts. Many such institutions 

do already offer credit cards and 

therefore have in place a compliance 

framework that meets applicable 

Regulation Z requirements. Those that 

do not could prioritize ensuring that 

their pricing of non-covered overdraft 

credit complies with the rule’s 

breakeven or benchmark provisions, as 

described above. If needed, those 

institutions could delay offering new 

covered overdraft credit accounts to 

ensure compliance with Regulation Z 

requirements, including those tied to 

credit account opening. 

For these reasons, the proposed 

effective date is sufficient for a very 

large financial institution to make 

appropriate changes necessary to 

comply with the rule. Accordingly, this 

rule has an effective date of October 1, 

2025. 

VI. Other Comments 

A. Possible Alternative or Additional 

Requirements 

Some commenters proposed various 

exemptions from the rule such as 

exempting credit unions and exempting 

check transactions. As to the credit 

union exemption, commenters raised 

that there are differences between credit 

unions large enough to be covered by 

this rule and other very large financial 

institutions covered by the proposed 

rule, including noting that credit unions 

are member-focused and are subject to 

different market incentives. Also, as 

discussed below regarding the 

implications for other laws, commenters 

stated that Federal credit unions are 

generally subject to a usury limit under 

the Federal Credit Union Act and 

asserted that it would be economically 

unfeasible for them to provide covered 

overdraft credit. These commenters also 

noted the small number of credit unions 

that would be directly covered at this 

time but argued that the rule could 

nevertheless have broad impact. As to 

the check exemption, one commenter 

argued that checks and debit cards are 

used by consumers in different ways 

and for differently sized purchases and 

that there may be a greater consumer 

impact when a check is not honored, 

including but not limited to possible 

NSF fees. 

The CFPB has considered these 

requests for exemptions but declines to 

add exemptions at this time. While 

credit unions may operate differently 

from banks in some respects, those 

differences are generally not material in 

the context of overdraft credit. In 

addition, the relatively small number of 

credit unions that will be covered by the 

very large financial institution 

designation and therefore subject to the 

final rule represent large entities with 

significant market impact. The CFPB 

has determined that any institution, 

including a Federal credit union, that 

qualifies as a very large financial 

institution should not be excluded from 

the rule solely because other applicable 

laws may limit the amount that they can 

charge consumers. The potential impact 

of other laws on institutions’ overdraft 

credit products is discussed in parts 

VI.E and VII below. Applying the same 

rule to overdraft credit provided by all 

VLFIs is consistent with the policy goal 

of applying the same consumer 

protections to overdraft credit that apply 

to other types of consumer credit. The 

CFPB, as discussed further below, 

intends to monitor the impact of this 

final rule, including the potential 

impact on non-covered entities, which 

may include smaller credit unions. As 

to the check exemption, the CFPB did 

not propose such an exemption and 

does not believe that consumers should 

receive less protection for checks than 

for other transaction types such as debit 

card or ACH transactions. The CFPB 

also notes that consumer usage of 

checks has been and continues to 

decline, such that any exemption would 

have declining impact.247

Many industry commenters argued 

that instead of applying Regulation Z to 

above breakeven overdraft credit, the 

CFPB should have proposed a different 

rule that retains overdraft credit’s 

current exclusions from the regulation 

and that encourages or mandates 

changes in practice for overdraft credit 

that some institutions have already 

implemented, including, for example: 

grace periods between when a consumer 

overdraws (or further overdraws) their 

account and when an institution 

assesses a fee; not assessing fees on de 

minimis overdraft balance amounts and 

overdraft transaction amounts; and 

processing transactions in an order that 

benefits consumers all else equal. Many 

of these commenters also suggested that 

the CFPB propose changes to the opt-in 

disclosure requirements in § 1005.17. In 

general, industry commenters argued 

that the CFPB’s chosen approach of 

applying Regulation Z—and applying 

coverage under Regulation Z based on 

the price of the overdraft credit—would 

result in increased prices for other 

deposit account features, including for 

consumers who do not currently use 

overdraft credit. 

The CFPB considered alternatives 

such as these prior to its issuance of the 

NPRM. The CFPB has determined that 

these alternative approaches would not 

adequately protect consumers who 

today use non-covered overdraft credit 

as an expensive short-term loan. 


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Because these consumers use overdraft 

credit in this way, the CFPB has 

determined that regulating overdraft 

credit as credit—i.e., applying to that 

credit the congressionally chosen 

statutory framework for consumer 

credit—will better protect these 

consumers than would the alternatives 

suggested by industry commenters. For 

example, the TILA framework will 

facilitate consumers’ ability to shop 

between institutions on the basis of the 

price institutions charge for providing 

covered overdraft credit. In contrast, 

consumers today generally do not shop 

between deposit accounts on the basis 

of institutions’ fees for non-covered 

overdraft credit, which may explain, at 

least in part, why institutions’ fees for 

non-covered overdraft credit 

persistently remain so high and 

consumers sometimes overdraw their 

accounts even though they have less 

expensive credit available elsewhere, 

such as through a credit card. Further, 

the TILA framework will require 

institutions to refrain from immediately 

taking consumers’ incoming deposits to 

repay their outstanding overdraft 

balances, which will facilitate 

consumers’ ability to control how their 

asset funds are used. In contrast, 

consumers today do not have a choice 

about their incoming deposits 

immediately being taken to repay 

overdrafts and the high fees. Moreover, 

the TILA framework will require 

institutions to provide separate periodic 

statements, and other required 

disclosures, for the covered overdraft 

credit account and for the covered asset 

account, which will facilitate 

consumers’ ability to know when they 

are accessing overdraft credit and how 

much they are being charged for it. 

In addition, nothing in the CFPB’s 

rule precludes institutions from 

providing the consumer protective 

features that they provide today for noncovered overdraft credit, such as those 

described above, in the context of 

covered overdraft credit (or from 

continuing to provide them in the 

context of non-covered overdraft credit). 

For example, nothing in Regulation Z 

precludes an institution from: providing 

a grace period between when the 

institution extends covered overdraft 

credit and when the institution assesses 

a finance charge (whether a fee or a 

periodic rate) on the credit; providing 

de minimis amounts of covered 

overdraft credit without assessing a 

finance charge for the credit; or, 

processing covered overdraft credit 

transactions in an order that benefits 

consumers by minimizing the associated 

finance charges. 

Regarding comments that the CFPB’s 

chosen approach could increase prices 

for other deposit account features, the 

CFPB discusses in the ‘‘Offsetting 

changes to other deposit account prices’’ 

section of the CFPA section 1022(b) 

Analysis below the possibility of 

potential increases to other deposit 

account prices as a result of this rule, 

and concludes that there is uncertainty 

about whether lost overdraft revenue 

would be replaced by increases to fees 

on deposit accounts, taking into account 

the fact that the lost revenue would be 

relatively low if divided by account per 

month, and that the CFPB has not 

observed offsetting price increases when 

financial institutions recently reduced a 

comparable amount of overdraft revenue 

voluntarily. And even if financial 

institutions wish to do so, these prices 

are likely to be more salient to 

consumers than overdraft fees, and so 

the CFPB expects there to be more 

efficient competition over those prices, 

which will limit the extent to which 

financial institutions are able to increase 

those prices. 

Many commenters other than industry 

commenters—including academic, 

nonprofit, and consumer advocate 

commenters—argued that in addition to 

the breakeven standard for the dollar 

amount of an overdraft fee for noncovered overdraft credit, the CFPB 

should restrict the number of overdraft 

fees for such credit that an institution 

may assess in a given time period (such 

as a day, week, month, or year). The 

CFPB is not adopting this additional 

restriction at the present time. The 

CFPB believes that its breakeven 

standard for the dollar amount of a fee 

for non-covered overdraft credit will 

provide sufficient consumer protection 

and that an additional restriction on the 

number of such fees that may be 

assessed is not necessary at the present 

time. The CFPB also believes that this 

additional restriction could result in 

increased implementation cost and 

complexity for institutions that might 

not be justified by the increased 

consumer benefit it would achieve. 

Other commenters encouraged the 

CFPB to pursue disclosure-type 

alternatives or additions to the 

rulemaking, such as increased financial 

education. These commenters felt that 

better financial education could 

empower consumers, which may reduce 

reliance on overdraft programs. Other 

commenters suggested revised 

consumer opt-in disclosures, more 

comprehensive, upfront disclosure of 

fee structures, or requiring an annual 

opt-out notice to consumers who 

previously opted-into overdraft 

programs. Another commenter 

suggested new disclosures to prevent 

misleading advertising. One industry 

commenter stated that whether a 

product or a service is a courtesy 

depends on more than whether the bank 

makes a reasonable profit, and 

encouraged the CFPB to consider the 

full suite of features surrounding an 

overdraft program in determining 

whether to exempt the program from 

Regulation Z. Two commenters 

suggested enhanced regulatory reporting 

for overdraft fees while a consumer 

advocate commenter suggested 

imposing fines for banks that abuse 

overdraft practices. 

Before issuing the proposal, the CFPB 

also considered changes such as these, 

including modifying the opt-in 

disclosure requirements at § 1005.17 of 

Regulation E. The CFPB did not propose 

such disclosure interventions and 

declines to pursue them at this time. 

After considering the comments, the 

CFPB has determined, as it 

preliminarily concluded in the 

proposal, 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 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 rule will ensure that 

financial institutions confirm that 

consumers can 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 rule 

will give consumers more time to repay 

overdraft credit and greater control over 

how to structure those repayments. 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106819 

248See 12 U.S.C. 4302(d); see also 12 CFR 

1030.8(a) and 12 CFR 707.8(a). 

249No provision in Regulation Z limits the price 

that an institution may charge for credit, including 

covered overdraft credit. The fee harvester 

provision in § 1026.52(a), which implements TILA 

section 127(n) (15 U.S.C. 1637(n)), limits to 25 

percent of the credit limit the amount of fees, other 

than penalty fees (which are addressed in 

§ 1026.52(b)), that may be charged during the first 

year of a credit card account. However, the fee 

harvester provision does not limit charges that are 

assessed as periodic rates. 

The CFPB also observes that the Truth 

in Savings Act already prohibits 

misleading deposit account 

advertisements, including misleading 

deposit account advertisements related 

to overdraft.248 The CFPB’s analysis of 

whether and when overdraft is or is not 

a courtesy is discussed elsewhere in this 

notice. As noted, the CFPB intends to 

monitor the impact of the final rule and 

may consider additional interventions 

as necessary in the future. 

B. Usury Limits 

Many industry commenters asserted 

under various bases that the CFPB’s 

proposed rule would constitute an 

impermissible usury limit. Some 

asserted that the proposal to apply TILA 

and Regulation Z to above breakeven 

overdraft credit would constitute a 

usury limit in contravention of CFPA 

section 1027(o) because VLFIs would no 

longer be permitted to provide noncovered overdraft credit at a price above 

that amount. Other industry 

commenters conceded that section 

1027(o) does not apply. Some asserted 

that TILA is a disclosure statute limited 

to ensuring adequate disclosure of credit 

terms and that the CFPB exceeded its 

authority by attempting to apply 

substantive limits to institutions’ 

pricing of overdraft credit. Some 

asserted that the application of TILA’s 

substantive protections, including the 

protections of the CARD Act, to covered 

overdraft credit would constitute an 

effective usury limit because, they 

argued, it would be infeasible for very 

large financial institutions to provide 

overdraft credit in compliance with 

those substantive protections. Some 

asserted that the proposed rule would 

constitute an impermissible usury limit 

because the application of Regulation Z 

to covered overdraft credit—i.e., the 

shift in the legal status of overdraft 

credit from being not subject to 

Regulation Z (non-covered overdraft 

credit) to being subject to Regulation Z 

(covered overdraft credit)—would result 

in the application of usury limits in 

other laws to covered overdraft credit, 

including limits in the Military Lending 

Act (10 U.S.C. 987), the Federal Credit 

Union Act (12 U.S.C. 1751 et seq.), and 

States’ laws. 

Applying TILA to above breakeven 

overdraft credit does not create a usury 

limit under CFPA section 1027(o). That 

section states that the CFPB has no 

authority ‘‘to establish a usury limit 

applicable to an extension of credit 

offered or made by a covered person to 

a consumer, unless explicitly authorized 

by law.’’ This CFPB rule applying 

Regulation Z to above breakeven 

overdraft credit does not ‘‘establish a 

usury limit’’: it does not impose a fee or 

rate cap or ban fees above a certain 

threshold, and, under the rule, an 

institution may charge any price it 

wishes for overdraft credit so long as it 

complies with Regulation Z.249

It is true that the shift in the legal 

status of overdraft credit as a result of 

the CFPB’s rule, from not being subject 

to Regulation Z (non-covered overdraft 

credit) to being subject to Regulation Z 

(covered overdraft credit), may result in 

other laws’ usury limits applying to 

certain instances of covered overdraft 

credit, such as the limits found in the 

Military Lending Act (MLA), the Federal 

Credit Union Act (FCUA), and States’ 

laws. Nonetheless, the CFPB’s rule 

applying Regulation Z to covered 

overdraft credit is not thereby 

‘‘establish[ing] a usury limit’’ because 

the CFPB’s rule does not establish any 

applicable usury limit. Instead, the 

legislatures that adopted those laws— 

e.g., the U.S. Congress and State 

legislatures—established those usury 

limits. The potential impact of the usury 

limits in those other laws on covered 

overdraft credit is discussed elsewhere 

in this notice. 

Moreover, commenters appear to 

mischaracterize the benchmark and 

breakeven thresholds to suggest that 

they create regulatory obligations and 

apply them to credit priced above those 

thresholds. Overdraft services are credit 

and overdraft fees are finance charges 

under TILA, but for the existing 

regulatory exception in Regulation Z. 

The CFPB is narrowing that exception 

in this final rule to the breakeven or 

benchmark level. This means the 

breakeven and benchmark thresholds do 

not apply heightened regulatory 

obligations on more expensive credit. 

TILA does that. The failure to shield 

credit above a certain threshold from 

Congressionally created consumer 

protections is not the creation of a usury 

rate. 

Regardless, TILA’s requirements, 

which the CFPB’s rule applies to 

covered overdraft credit, are not so 

onerous as to constitute an effective 

usury limit. As noted, TILA includes 

numerous substantive consumer 

protections that are implemented in 

Regulation Z and that the CFPB is 

applying to covered overdraft credit. 

Many very large financial institutions 

already provide credit cards, including 

subprime credit cards, that comply with 

all of Regulation Z’s substantive 

protections. Consumers of subprime 

credit cards share the same general 

characteristics as many consumers who 

use overdraft credit. The CFPB fully 

expects that covered overdraft credit can 

and will comply with the same 

substantive Regulation Z protections 

that subprime credit cards do. 

Accordingly, applying those Regulation 

Z protections to covered overdraft credit 

is not so onerous as to constitute an 

effective usury limit. 

Finally, some commenters asserted 

that the proposed rule would constitute 

an unlawful taking prohibited by the 

Fifth Amendment to the U.S. 

Constitution. The rule is not a limitation 

on Constitutionally protected private 

property that renders property unusable 

and is not an unlawful taking under the 

Fifth Amendment. 

C. Other Comments Regarding Statutory 

Authority 

One commenter asserted that the 

CFPB lacked authority to issue this 

Rule, arguing that the rule constituted a 

matter of vast economic and political 

significance subject to the ‘‘major 

questions’’ doctrine. Another contended 

that the CFPB lacked the authority to 

establish rules for overdraft services 

based on the price of the service because 

the TILA statutory provisions at issue 

do not reference credit price, whereas 

other credit laws (such as the Home 

Ownership and Equity Protection Act 

and the Military Lending Act) do. 

Consistent with the discussion above, 

the CFPB has the statutory authority to 

implement this rule. First, this rule does 

not implicate the ‘‘major questions’’ 

doctrine. This rule updates existing 

regulatory exceptions for overdraft 

credit offered by very large financial 

institutions and does not rely on a novel 

interpretation of the CFPB’s statutory 

authority. As discussed above, the plain 

meaning of TILA’s statutory definition 

of ‘‘credit’’ encompasses overdraft 

credit. Overdraft credit has only been 

partially excluded from TILA coverage 

by the operation of preexisting 

regulatory exceptions, including from 

the definition of ‘‘finance charge.’’ The 

major questions doctrine is a canon of 

judicial interpretation used to determine 

whether Congress delegated authority to 

an agency. This final rule does not 

create new obligations, but rather, it 

partially removes portions of existing 

regulation that act to relieve industry of 


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106820 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

250These commenters point to the following three 

examples of more recent survey research. In survey 

research by FHN, 9 percent of overdrafters, 

representing roughly 1.5 percent of all banked 

households, reported having incurred more than 10 

overdraft fees in 2022 (FHN Brief 2023). In survey 

research by the Federal Reserve Bank of New York, 

less than 1 percent of individuals reported 

overdrafting more than 10 times (see Donald P. 

Morgan & Wilbert van der Klaauw, Learning by 

Bouncing: Overdraft Experience and Salience, 

Liberty Street Econ. (Apr. 2024), https://

libertystreeteconomics.newyorkfed.org/2024/04/ 

learning-by-bouncing-overdraft-experience-andsalience/). In survey research by the Consumer 

Bankers Association, 3 percent of consumers 

reported overdrafting 10 or more times in the past 

12 months. CBA, Nationwide Survey of Consumer 

Overdraft Services Use and Sentiment: Post COVID– 

19 Pandemic (Mar. 2024), https://

consumerbankers.com/wp-content/uploads/2024/ 

04/2024.03.21-CBA-Overdraft-Survey.pdf. 

251CFPB 2017 Data Point. 

252CFPB 2013 White Paper at 17. 

253The CFPB found the average overdraft fee at 

these institutions to be $32.50 and the average 

amount attributable to losses to be $2.00 per 

overdraft transaction regardless of whether a fee 

was assessed, and $5.34 per fee-assessed 

transaction. CFPB Overdraft and NSF Practices 

Report. 

254FHN Brief 2023. 

255FHN, FinHealth Spend Report 2024, at 16 

(Aug. 2024), https://finhealthnetwork.org/wpcontent/uploads/2024/08/FinHealth-Spend-Report2024-FHN.pdf. 

256FHN Brief 2023. 

257 89 FR 19128 (Mar. 15, 2024). 

258 88 FR 78100 (Nov. 14, 2023). 

certain obligations Congress created by 

statute. It would be illogical to conclude 

an agency does not have delegated 

authority to remove a regulatory 

exception from a statute, but that the 

regulatory exception was nonetheless 

issued based on a valid delegation. 

Instead, both the Federal Reserve’s 

original rule creating the exception and 

this rule partially removing it are 

pursuant to authority granted to the 

agencies by Congress, as described 

herein. Furthermore, the economic 

impact of this rule, as discussed 

elsewhere in this notice, is significantly 

lower than any level that would 

implicate the major questions doctrine. 

Second, nothing in the relevant 

provisions of TILA precludes the CFPB 

from considering the price of a credit 

product when partially rescinding a 

regulatory exception to TILA’s coverage. 

For the reasons described above, the 

rule’s changes to § 1026.4(c)(3) are 

consistent with TILA and reasonable. 

The fact that Congress has regulated 

other credit products based in part on 

their price does not render these 

considerations forbidden in this context. 

D. Data Supporting Application of 

Regulation Z to Overdraft 

Some industry commenters asserted 

that the data the CFPB cited for its 

proposal to apply Regulation Z to above 

breakeven overdraft credit provided by 

very large financial institutions is 

outdated and therefore unreliable 

because some of the data predates the 

pandemic and some large institutions’ 

reduction or elimination of overdraft 

and NSF fees during the pandemic 

timeframe. As a result, these 

commenters assert, the CFPB is using 

insufficient and flawed data to justify its 

policy change of now applying 

Regulation Z to above breakeven deposit 

account overdraft credit provided by 

these institutions. These commenters 

stated, in particular, that the CFPB is 

relying primarily on its own 2012 data 

to identify and analyze consumers who 

overdraft, including ‘‘frequent 

overdrafters’’ (more than 10 overdraft 

fees in a year), which are the consumers 

that will be most affected by the rule. 

The CFPB’s 2012 data identified about 

9 percent of checking accounts as 

belonging to frequent overdrafters, 

whereas commenters argued that more 

recent survey research has found that 

only roughly 1.5 percent to 3 percent of 

banked households report more than 10 

overdraft fees in a year.250

The CFPB did not primarily rely on 

the 2012 data and assessed a number of 

evidentiary sources including more 

recent studies, but it was appropriate to 

include all of the data cited in the 

proposal. The CFPB is finalizing this 

rule not because of the precise 

percentage of overdrafters or frequent 

overdrafters but because the CFPB has 

concluded that above breakeven 

overdraft credit offered by very large 

financial institutions should no longer 

be exempt from TILA’s consumer credit 

protection for the reasons discussed 

above. Even were one to assume that the 

difference between recent surveys and 

CFPB data is due in whole or in part to 

an actual and permanent change in 

overdrafting frequency, the CFPB’s rule 

would remain justified for the reasons 

discussed herein. 

Moreover, it remains true and 

uncontroverted that overdraft is 

inordinately profitable for institutions 

and that this profit is made off 

consumers who are financially 

disadvantaged.251 Specifically, evidence 

provided by the CFPB shows that net 

losses from overdraft were only 14 

percent of overdraft fees.252 And in 2024 

the CFPB found that five large 

institutions’ average net losses from 

overdraft were only about 6 percent of 

overdraft fees across all overdraft 

transactions, and about 16 percent of 

overdraft fees across only fee-assessed 

transactions.253 Also, recent 

uncontroverted evidence reaffirms that 

financially vulnerable households 

continue to be more likely to pay 

overdraft fees than are other 

households. Specifically, about 17 

percent of all households with a 

checking account—i.e., households 

across all levels of financial health— 

reported incurring at least one overdraft 

or NSF fee in 2022 254 and 2023.255 In 

contrast, over that same time period, 

forty-six percent of financially 

vulnerable households reported 

incurring at least one overdraft fee and 

just 4 percent of financially healthy 

households reported incurring at least 

one overdraft fee.256 Commenters did 

not offer data to contradict these figures. 

Accordingly, the CFPB finds both that 

the overdraft fees consumers pay are 

about seven times higher than large 

institutions’ losses from overdraft and 

that financially vulnerable consumers 

are more likely to pay overdraft fees 

than are other consumers. 

Applying Regulation Z to above 

breakeven overdraft credit offered by 

VLFIs will benefit the financially 

vulnerable consumers who currently 

pay the preponderance of overdraft fees. 

The CFPB does not predict exactly how 

very large financial institutions will 

react to this final rule. Nonetheless, the 

CFPB notes that some very large 

financial institutions already offer 

overdraft credit at prices well below the 

median marketwide price. Whether very 

large institutions offer consumers noncovered, below-breakeven (courtesy) 

overdraft credit or covered overdraft 

credit that complies with the 

requirements of Regulation Z, the CFPB 

believes that such overdraft credit will 

be provided to these consumers on 

terms that are more beneficial to them 

than the terms on which non-covered 

overdraft credit currently is provided. 

Those disadvantaged consumers who 

are not offered any overdraft credit at all 

will benefit from avoiding the harms 

associated with today’s non-covered 

overdraft credit and from using 

alternative forms of credit that are more 

beneficial (less harmful) to them to the 

extent available. 

E. Implications for Other Laws 

Commenters noted the cumulative 

effect of the proposed rule and other 

Federal and State regulatory actions 

would result in higher costs for 

financial institutions, and higher costs 

and limited account availability for 

consumers. Industry commenters 

identified regulatory actions by the 

CFPB, the Board, FDIC, OCC, FTC, SEC, 

and various State agencies, such as the 

CFPB’s credit card late fee rule,257 the 

Board’s Regulation II,258 and the 

prudential regulators’ Basel III endgame 


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259 88 FR 64028 (Sept. 18, 2023). 

260See 15 U.S.C. 1691(a); 12 CFR 1002.4(a) which 

prohibits a creditor from discriminating on the basis 

of race, color, religion, national origin, sex, marital 

status, or age (provided the applicant has the 

capacity to contract); to the fact that all or part of 

the applicant’s income derives from a public 

assistance program; or to the fact that the applicant 

has in good faith exercised any right under the 

Consumer Credit Protection Act. See 12 CFR 

1002.2(l) defining a creditor as a person who, in the 

ordinary course of business, regularly participates 

in a credit decision, including setting the terms of 

the credit. See 12 CFR 1002.2(j) which defines 

credit as the right granted by a creditor to an 

applicant to defer payment of a debt, incur debt and 

defer its payment. 

261The 2005 Joint Guidance on Overdraft 

Protection Programs states that under ECOA and 

Regulation B, creditors are prohibited from 

discriminating against an applicant on a prohibited 

basis in any aspect of a credit transaction. This 

prohibition applies to overdraft protection 

programs. Thus steering or targeting certain 

consumers on a prohibited basis for overdraft 

protection programs while offering other consumers 

overdraft lines of credit or other more favorable 

credit products or overdraft services, will raise 

concerns under the ECOA. 70 FR 9127, 9131 (Feb. 

24, 2005). 

262See 12 CFR 1002.2(c) and 1002.9. 

263 12 CFR 1002.3(c)(1) defines incidental credit 

as consumer credit not made pursuant to the terms 

of a credit card account; not subject to a finance 

charge (as defined in Regulation Z, 12 CFR 1026.4); 

and not payable by agreement in more than four 

installments. 

264See 66 FR 8178, 8180 (Jan. 30, 2001) (stating 

that the OCC’s proposed rule amends § 7.4001(a) to 

clarify that the term ‘‘NSF fees’’ includes only those 

fees imposed by a creditor bank when a borrower 

attempts to pay an obligation to that bank with a 

check drawn on nonsufficient funds. Fees that a 

bank charges for its deposit account services— 

including overdraft and returned check charges— 

are not covered by the term ‘‘NSF fees.’’ These fees 

are therefore not ‘‘interest’’ but, rather, are charges 

covered by 12 CFR 7.4002); see also 66 FR 34784, 

34786 (July 2, 2001) (adopting the proposed change 

in the final rule). 

265See OCC Interpretive Letter 1082 (May 17, 

2007) (stating that a bank ‘‘is not creating a ‘debt’ 

that it then ‘collects’ by recovering the overdraft 

and the overdraft fee from the account’’ and that, 

‘‘[u]nder these circumstances, the [b]ank’s rights to 

collect debts under [S]tate law . . . are not 

implicated’’). 

266OCC Interpretive Letter No. 914 (Aug. 3, 2001). 

See also 70 FR 9127, 9129 (Feb. 24, 2005) (stating 

that ‘‘[w]hen overdrafts are paid, credit is 

extended’’). 

267See 12 CFR parts 3, 217 and 324. 

proposal.259 In addressing the changes 

to overdraft products and practices with 

this rule, the CFPB is aware of these 

other regulatory changes and proposals. 

As noted above, in the course of 

developing this rule, the CFPB met with 

other regulators to better understand the 

interaction of this rule with other laws 

and has determined that proceeding 

with the rule is appropriate to effectuate 

the purposes of TILA. 

Commenters also discussed the 

interaction of the rule with other 

statutes, regulations, and guidance. For 

example, industry commenters stated 

that the rule would result in the Equal 

Credit Opportunity Act (ECOA) and 

Regulation B applying to all financial 

institutions at any overdraft fee level. 

These commenters also stated that the 

CFPB did not consider the procedural 

burdens that applying ECOA to 

overdraft credit would impose on banks, 

such as keeping records and providing 

adverse action notices. 

The CFPB has considered the costs of 

applying the ECOA and Regulation B to 

overdraft credit. The ECOA prohibition 

against discrimination already applies 

to covered and non-covered overdraft 

credit regardless of the overdraft fee 

amount and regardless of the size of the 

creditor.260 The 2005 Joint Guidance on 

Overdraft Protection Programs makes 

that point in its discussion of the 

application of ECOA and Regulation B 

to overdrafts.261 However, non-covered 

overdraft credit is likely exempt from 

certain Regulation B requirements such 

as the requirement regarding adverse 

action notices 262 due to the Regulation 

B exemption for incidental credit.263

Covered overdraft credit, such as an 

overdraft line of credit, does not qualify 

for that exemption and thus must 

comply with certain Regulation B 

requirements such as the requirement 

regarding adverse action notices. With 

this final rule and its change to the 

definition of finance charge, previously 

non-covered overdraft credit will 

become covered overdraft credit (i.e., 

above breakeven overdraft credit) and 

will no longer qualify for the Regulation 

B exemption for incidental credit. Such 

newly covered overdraft credit must 

comply with Regulation B requirements 

such as the requirement regarding 

adverse action notices. Commenters 

provided no compelling reasons why 

financial institutions should not have to 

comply with these provisions of ECOA 

when they provide covered overdraft 

credit. 

Commenters also noted the impact of 

the proposed rule on the effect of certain 

statutes and regulations promulgated 

and administered by other Federal or 

State actors due to those statutes and 

regulations incorporating the Regulation 

Z definition of finance charge. State 

Attorneys General commenters stated 

that the rule would benefit States’ 

enforcement of their own consumer 

protection laws, especially in States 

where a practice that violates Federal 

law also violates the State’s consumer 

protection law. As discussed above, 

industry commenters noted that 

deeming fees for above breakeven 

overdraft credit to be finance charges 

would result in above breakeven 

overdraft credit exceeding usury limits 

under the MLA, the FCUA, and State 

usury laws. Consumer advocates noted 

that the impact of the rule on other laws 

benefits consumers, and that Congress 

and applicable agencies or other 

government entities have the authority 

to amend the statutes or implementing 

regulations and guidance as they see fit. 

Assuming the commenters are correct 

about the interaction of this rule with 

price caps under the MLA, FCUA and 

State usury laws, Congress or other 

Federal or State agencies and 

government entities are the appropriate 

entities to address the effects of those 

laws on the overdraft credit market. 

An industry commenter also stated 

that the proposal conflicts with OCC 

guidance and with the prudential 

regulators’ capital requirements. Citing 

the OCC 2001 proposal to amend its 

rules governing investment securities, 

bank activities and operations, and 

leasing,264 and the 2007 Interpretive 

Letter 1082 on overdraft practices,265

the commenter stated that the OCC does 

not treat overdrafts as credit nor treat 

the overdraft charges as interest. Even 

assuming the industry commenter’s 

statements are accurate, the CFPB and 

OCC are interpreting and acting under 

different statues, the CFPB under TILA 

and the OCC under the National Bank 

Act. With respect to TILA, a consumer 

advocate commenter noted that the 2001 

OCC interpretive letter states that an 

‘‘overdraft would be ‘credit,’ as defined 

by the Truth in Lending Act and 

Regulation Z.’’ 266

State regulators commented that 

applying Regulation Z to above 

breakeven overdraft credit would trigger 

additional capital requirements and that 

the additional capital requirements in 

combination with higher compliance 

costs and higher risks for financial 

institutions would render offering above 

breakeven overdraft credit impractical. 

The CFPB understands that, unrelated 

to whether the credit is subject to 

Regulation Z, (1) all extensions of 

overdraft credit—whether covered or 

non-covered—trigger capital 

requirements; and (2) it is a fact-specific 

analysis as to whether a particular 

overdraft credit contract would trigger 

capital requirements for credit not yet 

extended, including an analysis of 

whether there is a ‘‘commitment,’’ 

whether it is ‘‘unconditionally 

cancelable,’’ and what the resulting 

capital requirement would be.267

After considering comments about the 

cumulative impact of and interaction 

with other laws and after consulting 

with other agencies, the CFPB has 

determined to issue this final rule in 

order to effectuate the purposes of TILA. 


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106822 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

The CFPB acknowledges that these 

other laws may impose additional 

obligations and could affect a very large 

financial institution’s decision whether 

to offer covered overdraft credit. 

Institutions must consider the 

interaction of various laws when 

considering whether to offer any 

consumer credit product. 

VII. CFPA Section 1022(b) Analysis 

A. Overview 

In developing this final rule, the CFPB 

has considered the final rule’s potential 

benefits, costs, and impacts per section 

1022(b)(2)(A) of the Consumer Financial 

Protection Act of 2010 (CFPA). The 

CFPB requested comment on the 

preliminary analysis in the 2024 

proposal as well as submissions of more 

data that could have informed the 

CFPB’s analysis of the potential 

benefits, costs, and impacts. In 

developing the final rule, the CFPB has 

consulted with the appropriate 

prudential regulators and other Federal 

agencies, including about the 

consistency of this final 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 final rule is to allow 

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 summarizes comments 

received and the CFPB’s responses. 

Fourth, it goes through the potential 

benefits and costs, first to consumers 

and then to covered persons. 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 Limitation and Quantification of 

Benefits, Costs, and Impacts 

The discussion below relies on 

information that the CFPB has obtained 

from industry, other regulatory agencies, 

comments received, 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 final rule. The CFPB provides 

estimates, to the extent possible, of the 

potential benefits and costs to 

consumers and covered persons of this 

final rule 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 will 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 impact 

from delaying or forgoing some 

transactions. Similarly, the CFPB has 

found 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 quantitative 

data and research available to the CFPB 

provide an important basis for 

understanding the likely effects of the 

final rule, the data and research are 

insufficient to fully quantify the 

potential effects of the final rule for 

consumers and very large financial 

institutions. This reflects, in part, the 

fact that the effects of the final rule will 

depend on choices made by 

independent actors in response to the 

final rule, and the data and research 

available to the CFPB do not 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 final 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 2024 proposal 

requested additional data or studies that 

could help quantify the benefits and 

costs to consumers and covered persons 

of the final rule. The CFPB received 

little new informative data from 

commenters in response to this request; 

this information is discussed in part 

VII.E. 

C. Baseline for Analysis 

To evaluate the final rule’s benefits, 

costs, and impacts, the CFPB measures 

the final rule’s benefits, costs, and 

impacts against a baseline in which the 

CFPB takes 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. 

Some changes, including 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 is not 

responsible for interpreting those laws 

and regulations, and therefore has 

imperfect insight as to how they might 

interact with the final rule. 

Nevertheless, the ensuing analysis 

discusses some interactions as the CFPB 

understands them under current rules, 

as of September 2024. 

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 both the market 

and the regulatory environment are 

changing rapidly and might continue to 

do so absent the rule, but for purposes 

of the baseline the CFPB generally uses 

data from 2022 and established law at 

the time of drafting to characterize the 

status quo. 

D. Comments Received 

1. General Comments on the 

1022(b)(2)(A) Analysis 

Several academic and policy research 

groups argued that the CFPB’s 

consideration of the proposed rule’s 

potential benefits and costs in the 

1022(b)(2)(A) section of the proposal 

lacked sufficient rigor. They contended 

the CFPB failed to quantify many of the 

tangible costs it identified as likely 


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resulting from the proposed rule. The 

CFPB acknowledged certain limitations 

in part VIII.B of the proposal and 

considered all the available data and 

evidence. In the 2024 proposal, the 

CFPB requested that commenters 

provide additional data that could help 

inform the rule. While few comments 

contained relevant empirical 

information, the CFPB also considered 

the qualitative information provided by 

commenters in analyzing the potential 

benefits and costs of the rule. 

Nevertheless, the CFPB does not have 

sufficient data to precisely estimate 

every potential benefit and cost of the 

rule. The CFPB has reasonably 

evaluated all available data and 

evidence to provide quantitative benefit 

and cost estimates when possible and 

relied on economic principles and its 

subject matter expertise to provide 

qualitative benefit and cost estimates 

when suitable quantitative data were 

not available. 

Multiple industry trade groups 

claimed the CFPB did not appropriately 

consider the proposal’s potential to 

reduce consumer access to overdraft 

services as required by the CFPA. The 

CFPB did consider access to credit in 

the proposal and in this final rule, as 

mandated. The trade groups also said 

this outcome would cause significant 

harm to consumers who rely on 

overdraft as a short-term liquidity tool. 

The CFPB has considered the full effects 

of the rule on consumers, including of 

any potential loss of access, as part of 

its analysis in parts VII.E and VII.F. If 

covered financial institutions opt to 

comply with the final rule by lowering 

their non-covered overdraft fees and 

charging consumers the benchmark fee, 

they may also choose to use tighter 

underwriting standards for the noncovered overdraft credit that they 

extend. This could result in less noncovered overdraft credit access for some 

consumers. Given the evidence 

discussed in parts VII.E and VII.F 

below, a reduction in non-covered 

overdraft could also be beneficial to 

some affected consumers, and covered 

financial institutions may have 

incentives to offer other products in 

place of non-covered overdraft to help 

consumers cover potential deposit 

account shortfalls. Covered financial 

institutions that opt to use the 

breakeven standard will not have the 

same incentive to reduce non-covered 

overdraft credit access. 

Some industry commenters, including 

banks and credit unions, stated that the 

CFPB’s sample of institutions used to 

determine the benchmark overdraft fees 

was small and not representative of the 

broader market. On the contrary, the 

CFPB considers its recent relevant data 

from some major market participants 

together with the comment record, 

sufficient to establish a benchmark fee 

that allows a reasonable number of firms 

to break even while providing greater 

transparency and less administrative 

burden. Some of these commenters 

stated that each institution should be 

allowed to determine its own costs of 

providing overdraft services. The CFPB 

highlights that the benchmark fee is not 

a regulatory obligation and that the 

breakeven standard allows for any 

institution that prefers not to use the 

benchmark fee to calculate their own 

costs and losses to determine the 

appropriate fee. 

2. Comments Concerning the Proposal’s 

Impact on Consumers 

Numerous consumer advocates, 

nonprofits, and academic commenters 

expressed strong support for the 

proposal. They felt it would provide 

important new protections for 

vulnerable consumers who bear a 

disproportionate share of overdraft fees. 

Low-income Americans, communities of 

color, and students were highlighted as 

groups that would particularly benefit. 

Commenters cited statistics showing 

these populations are substantially more 

likely to incur multiple overdraft 

charges. Any resulting lower fees would 

therefore be seen as beneficial for these 

populations. The CFPB is in general 

agreement with these statements. 

Many individual commenters and 

consumer advocates shared personal 

stories illustrating the financial distress 

caused by overdraft fees. Examples 

included people going hungry because 

an unexpected overdraft charge 

deprived them of money for food or 

having to forgo needed medication 

because of fee-induced cash shortfalls. 

Several commenters said high overdraft 

charges had pushed them out of the 

banking system altogether. Commenters 

indicated that by curtailing institutions’ 

ability to impose onerous fees, the 

proposal was seen as promoting greater 

financial inclusion and access. These 

comments illustrate some of the 

consumer benefits the CFPB expects 

from potentially lower charges for 

overdraft credit. 

However, some industry groups, along 

with a few academic and individual 

commenters, stated that significantly 

lowering overdraft fees could restrict 

access to short-term liquidity for 

consumers who need it most. These 

commenters argued that if banks and 

credit unions can no longer profitably 

provide this service, these cash-strapped 

consumers may be pushed toward 

predatory payday lenders and other 

high-cost credit alternatives. Or they 

may be cut off from credit entirely and 

forced to forego the consumption that 

higher-priced overdraft credit might 

have funded. Further, some commenters 

argued that consumers generally value 

overdraft services because such services 

allow them to avoid the inconvenience 

and embarrassment of having 

transactions declined. The CFPB notes 

that the impact analysis of the proposal 

discussed possible effects on credit 

access in part VIII.D and VIII.G of the 

proposal and expects that credit is most 

likely to be withheld in situations where 

the borrower may be better off not 

accessing overdraft credit because of 

risks like default, account closure, 

collections, losses of future deposit 

account access, and the availability of 

cheaper alternative sources of liquidity. 

Several industry commenters also 

expressed concern that the proposal 

would lead to higher costs for other 

basic banking services or that 

institutions may reduce the banking 

services they provide to low-income 

households. They predicted that 

institutions may introduce new 

maintenance fees or balance 

requirements on checking accounts to 

compensate for lost overdraft revenue. 

Some asserted that this outcome could 

prompt more low-income consumers to 

become unbanked. However, consumer 

advocate commenters generally 

disagreed, arguing competitive 

pressures would prevent any drastic 

increases in account costs. They also 

noted that underserved consumers 

would still come out ahead financially 

even if modest new fees were 

introduced, given the outsize impact 

that overdraft charges currently have on 

lower-income consumer households. 

The CFPB understands that 

maintenance fees may already be as 

high as the market can bear (depository 

institutions are unlikely to be foregoing 

potential profits from higher deposit 

account maintenance fee pricing in the 

current market), but any small increase 

in the use of maintenance fees would 

introduce predictable, transparent, 

equal, and fair pricing for widely used 

deposit services and would replace a 

cross-subsidy from supernormal profits 

on a product used primarily by more 

resource constrained consumers. The 

CFPB includes a more detailed 

discussion of these potential responses 

by covered financial institutions in part 

VII.E.1. 

3. Comments Concerning the Proposal’s 

Impact on Covered Persons 

Several commenters expressed 

concern that applying Regulation Z to 

above breakeven overdraft credit would 


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have a negative impact on the market for 

financial services, stating, for example, 

that the proposed changes are a onesize-fits-all approach that would stifle 

competition and innovation. The CFPB 

notes that the final rule allows covered 

financial institutions the flexibility to 

determine whether providing noncovered overdraft at the benchmark fee, 

using the breakeven standard, or, 

alternatively, providing consumers with 

covered overdraft credit makes the most 

sense for their institution. To the extent 

that covered financial institutions elect 

to substitute towards offering more 

covered overdraft credit, if anything, 

market competition should be enhanced 

by the rule as market participants 

compete through more transparent 

prices, and disclosures improve the 

salience of prices for different available 

credit options to consumers. Numerous 

industry commenters strongly objected 

to the CFPB’s calculation of the 

benchmark fees for non-covered 

overdraft. They said the proposed 

benchmarks failed to account for all of 

the costs institutions incur to maintain 

overdraft programs. In addition to losses 

from unpaid overdrafts, banks and 

credit unions described substantial 

expenses related to compliance, 

disclosure, technology, and customer 

service that would not be recouped 

under the proposed potential 

benchmarks. While some portion of 

such costs may be directly traceable to 

providing overdraft coverage, generally 

these costs are more appropriately 

classified as costs of providing deposit 

services to consumers as opposed to 

costs of providing overdraft coverage to 

deposit account customers. Requiring 

that the costs of providing deposit 

accounts be borne primarily by the lowbalance consumers most likely to be 

charged overdraft fees is crosssubsidizing deposit account use for 

higher-balance accounts through fees 

assessed primarily on low-balance 

accounts. The CFPB acknowledges that 

some covered institutions may have 

overdraft costs that exceed the $5 

benchmark fee. For this impact analysis, 

the CFPB reiterates that institutions will 

be able to break even on non-covered 

overdraft even if the $5 benchmark is 

too low to cover their traceable costs, 

whether enumerated in the nonexhaustive examples of section 

1026.62(d)(2) or not, by resorting to the 

breakeven standard. Many industry 

commenters stated that if the rule were 

finalized as proposed, they would be 

forced to stop offering overdraft services 

altogether. Several smaller institutions 

said it would be impossible for them to 

profitably provide these services under 

market pressure from very large 

financial institutions. Even if some 

larger banks continued overdraft 

programs, commenters anticipated they 

would significantly tighten eligibility 

standards. The CFPB notes again that 

non-covered overdraft will not generate 

losses to institutions offering it as any 

covered financial institution has the 

option to use the breakeven standard, 

and some other expected responses have 

been detailed in the sections below. 

Restricting access to only a subset of 

customers will not make non-covered 

overdraft any more profitable for 

institutions using the breakeven 

standard. Institutions using the 

benchmark fee may have a short-term 

incentive to stop paying overdraft 

transactions when the expected cost of 

doing so is higher than the benchmark 

fee and they choose not to apply the 

breakeven standard. Some industry 

groups claimed that shifting current 

overdrafts to a Regulation Z model (of 

covered overdraft) would entail 

significant new compliance costs and 

restrictions that would make the 

products unprofitable and impractical. 

The CFPB disagrees, as mass market 

credit products offered under 

Regulation Z are prevalent, including 

subprime credit cards in particular. The 

CFPB includes a more detailed 

discussion of the potential for increased 

covered overdraft credit access in 

response to the final rule in part VII.E 

and VII.H below. Several industry 

commenters claimed the proposal 

would disproportionately harm smaller 

community banks and credit unions, 

asserting that these institutions often 

derive a greater share of their overall 

revenue from overdraft fees compared to 

large national banks and typically have 

a higher share of low-income customers 

who rely on overdraft. If the rule 

curtails this income stream, commenters 

warned it could threaten the viability of 

some smaller institutions, spurring 

further industry consolidation. The 

comments stated that this outcome 

would be detrimental to traditionally 

underserved communities that depend 

on local banks and credit unions for 

access to basic financial services. The 

CFPB notes that the rule will only apply 

to very large financial institutions and 

therefore will not have any direct 

impact on smaller financial institutions. 

To the extent that very large financial 

institutions respond to the rule by 

offering overdraft credit to consumers at 

more favorable rates, the rule could 

generate some competitive pressure that 

may indirectly affect smaller financial 

institutions. However, the CFPB notes 

that some very large financial 

institutions already offer overdraft at 

prices well below the median market 

price, or without assessing any fee at all. 

The CFPB does not expect overdraft 

price reductions in response to the rule 

to exert different competitive pressures 

for smaller financial institutions than 

past price reductions that some very 

large financial institutions have already 

implemented. In particular, the CFPB 

does not expect the final rule to make 

overdraft prices more salient for 

consumers at small financial 

institutions, and thus the final rule is 

unlikely to increase shopping for 

deposit accounts based on overdraft 

prices. 

A number of credit unions argued the 

proposal failed to account for their 

unique structure and constraints. They 

argued that as not-for-profit 

cooperatives, credit unions use 

overdraft fees to support services and 

programs that benefit their membership 

as a whole, and that curtailing this 

revenue could force them to cut back on 

financial education, community 

development efforts, and other 

initiatives. The CFPB acknowledges that 

its impact analysis does not attempt to 

estimate how much of prior 

supernormal profits were invested in 

prosocial activities or cross-subsidies to 

consumers in even greater need than 

typical overdrafters. Commenters also 

noted that most credit unions are 

subject to an 18 percent interest rate 

cap, which they asserted would make it 

very difficult to offer overdrafts as a 

Regulation Z line of credit. They said 

this limit puts credit unions at a 

competitive disadvantage to banks, 

which are not subject to the same 

restriction. The CFPB acknowledges that 

the few credit unions among very large 

financial institutions subject to the rule 

may face additional constraints on their 

covered overdraft programs in 

accordance with the requirements of the 

Federal Credit Union Act and associated 

regulations. The CFPB also understands 

that the nonprofit nature of credit 

unions makes changes offsetting the lost 

overdraft revenue more likely, or as 

much as lower profits will manifest as 

lower yields on deposits (as dividends 

to members), even mechanical. There 

was also widespread concern among 

industry commenters that while the 

proposal only directly applies to 

financial institutions with over $10 

billion in assets, smaller entities would 

be under pressure to reduce their fees in 

order to remain competitive. 

Community banks and credit unions 

said they simply do not have the 

economies of scale to absorb the same 

loss of overdraft income that large 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106825 

268 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. 

269This 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. 

270CFPB 2014 Data Point at 10 tbl.2. 

271CFPB October 2023 Data Spotlight. 

272Some State-charted credit unions reported 

substantial overdraft revenue under California’s 

Financial Code sec. 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-of-Income-from-Feeson-Nonsufficient-Funds-and-Overdraft-Charges_

2023.pdf (DFPI 2023 Report). 

national banks can withstand. Several 

commenters urged the CFPB to exempt 

small institutions from the rule entirely 

in recognition of this dynamic. The 

CFPB does not expect that applying the 

rule to very large financial institutions 

will materially change market 

conditions for smaller market 

participants not subject to such 

constraints, including the large majority 

of credit unions not subject to this rule. 

The existence of a wide range of fees 

and product offerings under the baseline 

suggests that there are unlikely to be 

large changes in the rate of consumers 

that are currently served by small 

financial institutions not covered by the 

final rule shopping for or switching 

between banks due to the rule. To the 

extent that some consumers become 

more sensitive to overdraft fees when 

choosing a financial institution, the 

CFPB expects that small institutions 

will find ways to offer these consumers 

value that convinces them to stay. 

E. Potential Benefits and Costs to 

Consumers and Covered Persons 

1. Potential Benefits and Costs to 

Consumers 

In addition to other changes discussed 

later in this section and the further 

changes discussed in the following 

section, the final rule will 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 final 

rule) or the benchmark fee published by 

the CFPB. The CFPB anticipates that its 

final rule generally will benefit 

consumers in two ways. First, some very 

large financial institutions may reduce 

their fees so that they can continue 

offering non-covered overdraft credit. In 

general, lower overdraft fees for noncovered overdraft credit will 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 will 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 final rule’s benefits to 

consumers depending on how various 

market participants, such as financial 

institutions covered by the final rule, 

entities not covered by the final rule, 

and consumers, respond to the final 

rule. The discussion below begins with 

an analysis of the final rule’s direct 

benefits to consumers assuming that 

very large financial institutions comply 

with the final rule by lowering their fees 

for non-covered overdraft credit. The 

discussion then considers how other 

potential responses by very large 

financial institutions could impact the 

final rule’s direct benefits to consumers. 

Next, the discussion considers how the 

final rule 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 final rule 

may respond to the final rule. 

i. Estimated Savings to Consumers if All 

Very Large Financial Institutions Use 

the CFPB’s Proposed Benchmark Fee or 

Breakeven Standard 

Under the final rule, 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 $5 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 final 

rule’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 noncovered overdraft credit and the total 

fees they will pay if non-covered 

overdraft credit were priced at the $5 

benchmark fee. Today, fees for noncovered overdraft credit are generally 

greater than $30 per transaction.268

Under the final rule, fees for any noncovered overdraft product provided by a 

very large financial institution will 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 

CFPB-supervised 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.269 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.270 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.271 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 are an 

estimated 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 did not include data on 

overdraft fee revenue in 2022.272 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 


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273See 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, 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. 

274The CFPB used FFIEC call report data on 

overdraft and NSF fee revenue from 2022 rather 

than 2023 to estimate benefits and costs to ensure 

consistency with the overdraft-related cost data the 

CFPB collected and used to inform the benchmark 

fee, which are only available from 2022. Total 

overdraft and NSF fee revenue paid by consumers 

at banks with more than $1 billion in total assets 

was somewhat lower in 2023 than in 2022—$5.83 

billion in 2023 as compared to $7.61 billion in 2022 

(As in 2022, data on banks below $1 billion in 

assets are not available for 2023.) This would 

suggest that the estimated benefits, costs, and 

impacts on consumers and covered persons could 

be somewhat smaller if the analysis relied on data 

from 2023 rather than 2022. See CFPB Data 

Spotlight, Overdraft/NSF Revenue in 2023 down 

more than 50% versus pre-pandemic levels, saving 

consumers over $6 billion annually (Apr. 2024), 

https://www.consumerfinance.gov/data-research/ 

research-reports/data-spotlight-overdraft-nsfrevenue-in-2023-down-more-than-50-versus-prepandemic-levels-saving-consumers-over-6-billionannually/ (2024 CFPB Data Spotlight). 

275The CFPB collected 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 average fee recently reported by the New 

York State Department of Financial Services for 

2022 based on surveyed entities, most of which 

would not be subject to this final rule. 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. See Karen Bennet et al., Survey: ATM fees 

reach 26-year high while overdraft fees inch back 

up, Bankrate.com (Aug. 21, 2024) https://

www.bankrate.com/banking/checking/checkingaccount-survey/. 

276This 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. 

such revenue).273 Banks with more than 

$1 billion in assets reported $7.72 

billion in overdraft/NSF revenue in 

2022, 90.55 percent or $7 billion of 

which the CFPB estimates is overdraft 

revenue for reasons explained above. 

Assuming this $7 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.274 From 

information collections by the CFPB, it 

estimates the average overdraft fee 

amount to be $32.50.275 The CFPB 

initially assumes that a reduction in the 

fee for non-covered overdraft credit will 

affect neither the quantity of credit 

demanded nor the quantity supplied, 

meaning that the application of the 

benchmark fee across the entire market 

will imply mechanical savings for 

consumers, unaffected by behavioral 

responses.276 As discussed in part 

IV.D.3, the CFPB has finalized $5 as the 

benchmark fee. Assuming $5 will be the 

new average fee across the market, the 

decline in market total revenue will be 

proportional to the decline in the 

average fee amount. Thus, using a 2022 

baseline, a $5 fee will save consumers 

$5.2 billion (84.6 percent of the 2022 

total) annually. Savings from lower fees 

will 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 

will permit more consumption. Current 

users of non-covered overdraft credit 

will 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 noncovered overdraft is currently. A large 

reduction in fees for non-covered 

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 will 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 

$5 benchmark fee will 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 will be 

less as their fee will not drop all the way 

to $5. The gains for consumers will 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. Data 

produced in response to the CFPB’s 

supervisory information collections on 

2022 overdraft practices suggest that at 

least some very large financial 

institutions will 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 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106827 

277FinHealth Spend Research Reports from 2021, 

2022 and 2023 have estimated that 17 percent of 

responding households have paid an overdraft fee 

in the prior 12 months between November 2021 and 

January 2023. See generally, FHN, Market Analysis: 

FinHealth Spend Research–Latest Research, https:// 

finhealthnetwork.org/finhealth-spend-research/ 

(last visited Dec. 3, 2024). 

278See CFPB Fall 2023 Highlight; see also CFPB 

2014 Data; CFPB 2017 Data Point. 

279Oz 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. 280 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. 

281 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. 

in its supervisory information 

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 may change in response to 

the final rule, current cost and loss 

levels may not be a reliable indicator of 

future cost and loss levels under the 

final rule. Overdraft fees are incurred by 

consumers in an estimated 17 percent of 

households annually.277 Among these, 

the consumers who will benefit most 

from the final rule are those that incur 

the largest number of overdraft fees. 

Thus, a change in fee amounts will have 

an outsized impact on specific groups of 

consumers. The CFPB collected 2022 

calendar year information from entities 

it supervises (the group that will be 

affected by the final rule), which 

reinforced patterns of disparity that 

prior CFPB research and others have 

established: 278 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 (optedin 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 overdraft fees per 

year on average. Therefore, the benefits 

of any fee changes driven by the final 

rule will be predominantly experienced 

by accountholders who had either 

opted-in accounts or lower-balance 

accounts. Indeed, in aggregate, across all 

institutions represented in the CFPB’s 

Supervisory Information collection, onefifth 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 per-item overdraft 

fees to accounts that were both lowerbalance accounts and opted-in accounts, 

even though only five percent of 

accounts fell into this category. 

Furthermore, accounts that paid for 

overdraft most often (12 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.279

ii. Responses by Very Large Financial 

Institutions Covered by the Final Rule 

Consumer gains will likely differ from 

the mechanical effect of lower fees on 

non-covered overdraft as described in 

the section above if some very large 

financial institutions tailor their offering 

to the new environment as the final rule 

allows. The discussion in this part starts 

with the possibility that institutions 

might adjust underwriting standards or 

overdraft coverage limits for noncovered 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 noncovered overdraft, primarily covered 

overdraft credit but also transfers from 

linked asset accounts. Finally, this part 

discusses repricing of financial 

products, like maintenance fees on the 

underlying checking account. 

Availability of Non-Covered Overdraft 

Credit 

Assuming that very large financial 

institutions comply with the final rule 

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.280 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 the financial 

institution’s reputation.281 Lower 

potential fee revenue could impact the 

decision to extend non-covered 

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 will 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 final 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, the firms may offer other 

products instead. To the extent that very 

large financial institutions opt to reduce 

access to non-covered overdraft, it could 

result in an increased likelihood that 

transactions are declined for some 

consumers. The CFPB understands that 

depository institutions rarely charge 

NSF fees on declined ATM or one-time 

debit card transactions when there were 

nonsufficient funds at the time the 

transaction was attempted. The CFPB 

expects that this will somewhat 


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106828 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

282 74 FR 59033, 59041 (Nov. 17, 2009). In 2010, 

card issuers reported that their median pertransaction cost of nonsufficient funds handling 

was one cent. 76 FR 43394, 43398 (July 20, 2011). 

Since then, the transacted weighted average cost of 

nonsufficient funds handling has fallen to $0.005. 

FRS, 2021 Interchange Fee Revenue, Covered Issuer 

Costs, and Covered Issuer and Merchant Fraud 

Losses Related to Debit Card Transactions, at 39 

tbl.14A (Oct. 2023), https://www.federalreserve.gov/ 

paymentsystems/files/debitfees_costs_2021.pdf. 

Nonsufficient funds handling costs were described 

in the survey as ‘‘[c]osts of handling of events in 

which an account does not have enough funds to 

settle an authorized debit card transaction between 

the time of authorization of that transaction and the 

settlement of that transaction.’’ Id. at 28 n.25. Based 

on this description, the cost of handling events in 

which the debit card transaction was not authorized 

is likely even lower. 

283See Jennifer L. Dlugosz et al., Who Pays the 

Price? Overdraft Fee Ceilings and the Unbanked 

(Fed. Rsrv. Bank of N.Y., Staff Rep. No. 973, June 

2021), https://www.newyorkfed.org/medialibrary/ 

media/research/staff_reports/sr973.pdf (revised 

July 2023) (Dlugosz 2021 Study). 284Comments citing this study generally 

overlooked the CFPB’s consideration of some 

negative consequences of unpaid overdraft or 

declined transactions. The CFPB has not ruled out 

and does not rule out decreased overdraft credit or 

checking account access for some consumers, but 

does not expect consumer harm from such potential 

outcomes to necessarily outweigh consumer gains 

from lesser charges, more transparent pricing, and 

more efficient competition in overdraft credit and 

deposit account markets. 

285The study cites three possible reasons why the 

share with checking accounts might be lower in 

their data than other surveys or administrative 

records: their focus on checking accounts and 

exclusion of savings and money market accounts, 

the nearly 10 year difference in timing between 

their survey and other available survey evidence, 

and the known underreporting of bank account 

ownership in survey data relative to administrative 

records shown in a 2021 study by Yogo, Cox, and 

Whitten. See Dlugosz 2021 Study at 17 n.19; see 

also Yogo et al., Financial Inclusion Across the 

United States (Dec. 6, 2021), https://

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

id=3934498 (last revised Nov. 25, 2024) (Cox 2021 

Study). 

286An academic discussant of an earlier draft of 

the study recommended further analysis to allay 

similar concerns. See Christopher Palmer, MIT 

Sloan & NBER, Who Pays the Price? Overdraft Fee 

Ceilings and the Unbanked, Presentation at the 

Boston Fed Day Ahead Conference, at 9 (Jan. 6, 

2022), https://web.mit.edu/cjpalmer/www/ 

discussions/Palmer%20Discussion%20

of%20DMM.pdf. 

attenuate any increase in likelihood that 

institutions decline these transactions 

since their expected revenue from the 

decline is negligible. While assessing 

NSF fees when declining ATM or onetime debit card transactions may make 

this response more likely, doing so 

would harm customers, damage 

consumer goodwill by charging a fee in 

return for no service, and, as noted by 

the Board in its preamble to the 2009 

Opt-In Rule, ‘‘could raise significant 

fairness issues’’ under the Federal Trade 

Commission (FTC) Act because ‘‘the 

institution bears little, if any, risk or 

cost to decline authorization of an ATM 

or one-time debit card transaction.’’ 282

Limited access to non-covered 

overdraft could be beneficial to 

consumers with access to cheaper credit 

options they mistakenly forgo or who 

would have preferred that a transaction 

was declined rather than incurring an 

overdraft fee. Some consumers who 

would not have repaid the overdraft 

credit may avoid the negative effects of 

default, including account closures, 

debt collection calls and litigation, and 

reporting to account screening 

consumer reporting agencies (which are 

specialty deposit credit reporting 

agencies) that can make it difficult to 

open a checking account at another 

financial institution. 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.283 Contrary to some 

commenters’ claims, the CFPB 

considered this study carefully in its 

proposal and reconsidered it for the 

final rule.284 The work 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 low-income 

households opening deposit accounts. 

In the survey data the study uses, 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.285 The estimates 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 suffered worse 

financial health, and they suggest that 

this is consistent with welfare 

improvements for these consumers in 

the short run. These estimates do not 

make the CFPB expect substantial 

consumer harm from this final rule. 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’s 

causal reasoning requires 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 exemption from State fee caps, and 

evaluating these assumptions is difficult 

given the five-year window for which 

the study has data.286 Assuming the 

internal validity of the findings, 

differences in both the economic 

context and the nature of the regulatory 

change make it unlikely that the study’s 

findings will apply directly in the 

context of this final rule. The study 

authors suggest that relaxing caps may 

have been beneficial to consumers 

without bank accounts in 2001, but this 

is difficult to conclude without strong 

assumptions about how consumers 

value deposit account access, overdraft 

credit, and overdraft fees. In addressing 

which of the four proposed benchmark 

fees the CFPB should adopt in this final 

rule, an academic commenter urged the 

CFPB to adopt one of the lower 

proposed benchmarks fees while 

acknowledging that these would be 

more likely to result in reduced 

overdraft credit limits for some 

consumers. The commenter asserted 

that ensuring consumers can make 

better-informed borrowing choices or 

that they would face substantially lower 

per-episode non-covered overdraft fees 

would be preferrable to permitting 

higher non-covered overdraft fees, even 

if those fees were less than half of the 

prevailing fees charged in today’s 

market. The CFPB also notes that the 

final rule will not impose limits on all 

overdraft fees but rather will 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 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106829 

287As discussed in part I.B 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. 

288See, 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. 

289See Paola Boel & Peter Zimmerman. Unbanked 

in America: A Review of the Literature. Econ. 

Comment Number 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. 

290See CFPB May 2023 Data Spotlight. 

291 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 (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. See Sule Alan et al., Unshrouding: 

Evidence from Bank Overdrafts in Turkey, 73 J. Fin. 

481 (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. 

See Michael D. Grubb, Consumer Inattention and 

Bill-Shock Regulation, 82 Rev. Econ. Stud. 219 

(2015), https://academic.oup.com/restud/article/82/ 

1/219/1543467. Grubb et al. indeed report on field 

experiments in the U.K. where timely text message 

alerts saved consumers 11 to 27 percent of overdraft 

fees, which also shows that many had available 

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

Sending Out an SOS: Automatic Enrollment 

Experiments for Overdraft Alerts (forthcoming in 

the Journal of Finance, accepted May 8, 2024), 

https://sites.google.com/bc.edu/michael-grubb/ 

research. Heidhues and Ko ̈ szegi use overdraft as 

their prime example of markets where providers 

exploit the mistakes of some consumers. See Paul 

Heidhues & Botond Ko ̈ szegi, Naı ̈vete ́-Based 

Discrimination, 132 The Q. J. Econ. 1019 (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. See John 

Gathergood & Arna Olafsson, The Co-holding 

Puzzle: New Evidence from Transaction-Level Data 

(Oct 10, 2023), https://ssrn.com/abstract=3607560. 

292For example, it is not clear if the credit used 

as calculated in the study reflects the highest 

overdraft balance a consumer had during the year, 

the sum of all overdraft transactions during the 

year, average monthly overdraft balances within the 

year, or some other measure. 

293At the commenter’s ‘‘average amount of 

overdraft liquidity available per customer’’ of $756, 

this would be expected to cover nine overdraft 

transactions at an average overdraft transaction 

amount of $50 (see FHN Brief 2024) and an average 

overdraft fee of $32.50 (see CFPB 2024 Overdraft 

NSF Report at 13). Under the benchmark fee of $5, 

available overdraft liquidity close to half the current 

average among the survey respondents ($385) 

would still cover seven overdraft transactions at the 

average transaction amount. 

a smaller decrease in total service 

charges, which suggests less than fully 

offsetting price responses.287 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.288

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.289 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.290

In some cases, in response to the final 

rule, the above referenced more 

conservative underwriting may lead 

lenders to reject transactions they would 

not have rejected under the baseline 

where consumers do not have other 

viable options. In such cases, those 

consumers will no longer have the 

option to use non-covered overdraft as 

credit, which means transactions will be 

declined, but also, the consumers will 

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.291 Financial institutions will 

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. 

One industry trade commenter 

summarized responses from 21 member 

banks answering its survey about their 

overdraft practices in 2023 to support its 

assertion that the CFPB could quantify 

the impact of the rule on availability of 

non-covered overdraft, and asserted that 

the survey results show that the final 

rule would lead to a significant 

reduction in the amount of credit 

available to customers through noncovered overdraft, which the commenter 

stated was not accounted for in the 

proposal. The commenter provided 

results for 13 of the 21 member banks 

that responded to the survey, excluding 

responses for banks that did not offer 

overdraft or did not meet the definition 

of a very large financial institution. 

Among these 13 respondents, the 

reported average amount of non-covered 

overdraft credit available to overdraft 

customers in 2023 was $756, and on 

average overdraft consumers ‘‘used’’ 

about half of the available credit in 

2023. Respondents reported that they 

would reduce the amount of available 

non-covered overdraft credit under 

different potential benchmark fee 

amounts. Furthermore, the survey’s 

methodology provides an insufficient 

basis to credibly quantify potential 

impacts of the rule. For example, the 

study’s description of its methodology 

does not make clear how the measure of 

credit used is calculated, making it 

difficult to evaluate if the calculation 

captures the relevant economic 

concept.292 In any event, at the $7 

benchmark fee amount, five out of ten 

respondents reported that the reduction 

in average available overdraft credit 

would not exceed 50 percent. Even at 

the $3 benchmark, two out of ten 

claimed the available overdraft credit 

would be reduced by 50 percent or less. 

Either scenario is consistent with an 

expectation that only heavy users of 

overdraft would face an effective 

reduction in their overdraft credit 

available to cover transactions; 

respondents stated that, on average, 

overdrafters used only half of their 

available credit line and currently 

extended liquidity also covers the 

excess overdraft fees that the final rule 

will reduce.293 The survey thus suggests 

that many financial institutions will be 

able to use the $5 benchmark fee 

without meaningfully reducing 

overdraft access or use for many 

consumers. 

Waiver Policies 

Currently, a substantial fraction of 

overdraft fees is waived by financial 

institutions, either because regulation 


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106830 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

294CFPB Overdraft and NSF Practices Report at 

6. 

295Manisha Padi, Contractual Inequality, 120 

Mich. L. Rev. 825, 834–40 (2021), https://

repository.law.umich.edu/cgi/ 

viewcontent.cgi?article=8399&context=mlr. 

296 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/publication/ 

corporate/ep23-1.pdf (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 

prevalent in the United States. 

297Regulatory 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. 

does not allow fees on transactions that 

are paid 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 will 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 will affect both parts of this 

tradeoff. Lower potential fee revenue 

will mean that depository institutions 

will 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 the 

Overdraft and NSF Practices Report, the 

$5 benchmark fee would not have 

covered the average charge-off losses 

across the institutions in the CFPB’s 

data for 2022 if they had applied their 

current waiver policies (charging $5 

only in instances where they actually 

charged their current higher fee in 

2022).294 This suggests that institutions 

that currently waive or reverse fees 

might reconsider their policies if the 

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. If an institution was to adopt 

the breakeven standard, it will charge 

higher fees but may still have an 

incentive to tailor its 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 will 

shift the consumer experience from 

higher overdraft fees (as much as $35) 

that might be waived discretionarily, to 

lower overdraft fees (as low as $5) that 

are more predictable. On net, the CFPB 

expects that this shift will 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 amounts to what has 

been called ‘‘contractual inequality.’’ 295

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 

will choose to apply for and use covered 

overdraft products, and whether very 

large financial institutions will 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 will develop. In 

particular, it will 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 will require extensions of 

existing systems or new installations at 

many institutions, transitioning a new 

customer base to covered overdraft 

credit will 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 will have experience 

underwriting such small lines of credit 

covered by Regulation Z for this 

population (either for a credit card or 

extant overdraft lines of credit). The 

effective date will 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 will 

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 

financial institutions will 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.296

Institutions may find it harder to 

quickly adjust credit limits for covered 

overdraft credit than for non-covered 

overdraft credit, and this difference may 

be more pronounced 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 will be 

less expensive than existing noncovered overdraft products for the same 

consumers and coverage.297

Consumers will also stand to gain 

from the availability of covered 

overdraft credit because meeting 

periodic minimum payments, which are 

generally lower than the full balance, 

will 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, will cover more 

transactions while the credit account 


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298See Pew 2017 Chartbook at 1, 6 fig. 5 (three 

out of four consumers do not understand they have 

a right to not opt-in to overdraft on debit card 

transactions). 

299Based 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, 

and 16 were not charging a fee to transfer funds 

from a credit account. 

300Today’s market features checking accounts 

with neither maintenance nor overdraft fees. 

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 will 

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 account screening consumer 

reporting agencies (which are specialty 

deposit credit reporting agencies) 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 

final rule. 

When consumers at very large 

financial institutions are offered covered 

overdraft credit, that covered overdraft 

credit will not be subject to the 

Regulation E opt-in requirement for 

non-covered debit card overdraft. 

However, it will 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. 

Financial institutions will not be 

required to permit consumers to consent 

separately to overdraft charges on onetime debit card and ATM transactions, 

versus overdraft on other transaction 

types, the way Regulation E requires. A 

very large financial institution will be 

permitted, instead, to simply give the 

consumer the choice to apply for 

covered overdraft credit that will 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 will 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 

final rule. Where a financial institution 

only offers covered overdraft credit 

bundled for all transaction types, 

consumers who are not opted in today 

will gain the right to, effectively, refrain 

from opting into overdraft on 

transactions other than one-time debit 

and ATMs. They will 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 Regulation E optin right is low.298

If very large financial institutions 

chose to offer closed-end covered 

overdraft credit, such closed-end 

covered overdraft credit will not be 

subject to the substantive protections 

discussed above. Instead, it will be 

subject to the disclosure requirements 

that apply to closed-end credit. The 

CFPB believes it is unlikely that this 

product will be provided. 

With non-covered overdraft credit less 

profitable for financial institutions and 

available to fewer consumers, both 

institutions and consumers will 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 will 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 final rule. 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.299

Offsetting Changes to Other Deposit 

Account Prices 

As discussed above, the final rule will 

lead to reductions in non-covered 

overdraft revenue at many very large 

financial institutions, and it is uncertain 

whether that revenue will be replaced, 

potentially by revenue from covered 

overdraft or other substitute products. 

Overdraft provider responses to this lost 

revenue will 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 through 

increasing other checking account 

prices or decreasing rates paid on 

deposit accounts. Whether financial 

institutions will offset lost overdraft fee 

revenue in this way for some or all 

deposit accounts will depend on a 

number of factors, including overall 

profitability of deposit accounts and the 

nature of competition among financial 

institutions. Without predicting exactly 

how firms will respond, the CFPB 

believes a reduction in overdraft fee 

revenue need not translate into 

increased maintenance fees, especially 

for high-balance consumers.300 In 

addition, as discussed in this section, 

very large financial institutions will 

generate revenue by assessing charges 

on covered overdraft credit or other 

credit products that substitute for noncovered overdraft. 

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 final rule will not eliminate all noncovered overdraft fee revenue. With the 

$5 benchmark (and again, assuming for 

analytical purposes full adoption of the 

benchmark), financial institutions will 

lose approximately 84.6 percent in 

weighted average fee revenue (from 

$32.50 average fees to the $5 

benchmark), totaling a revenue loss of 

$3.19 per account per month. 

The magnitude of this extreme upper 

bound on lost revenue per account 


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301See 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. 

302See CFPB May 2023 Data Spotlight. 

303See FCA 2023. 

304Minimum balance requirements typically 

affect fee waivers and not overall account access. 

To the extent that fees are introduced for consumers 

that fail to satisfy minimum balance requirements, 

the resulting fees will also disproportionately be 

assessed on more resource-constrained consumers. 

A discussion on the availability of non-covered 

overdraft credit is above. Upon opening, some 

accounts might require a larger balance to limit 

adverse selection. The CFPB expects non-covered 

overdraft access to be determined separately from 

basic checking and deposit account access, with 

limited changes to the supply of the latter. A 

discussion on potential demand responses to more 

transparent price changes is below. 

305The 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. 

reassures the CFPB that any potential 

losses to banking access can remain 

limited. In fact, there are large financial 

institutions for which this final rule is 

unlikely to result in substantial 

reductions in revenue.301 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.302 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.303

Offsetting changes in prices, if any, 

will limit the benefits to consumers 

from the final rule (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 

will 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, will incur only 

modest losses under the final rule 

relative to the baseline. Thus, to the 

extent that covered financial institutions 

respond to the rule by increasing 

deposit account maintenance fees or 

decreasing net interest paid for deposit 

accounts, this will decrease the total 

benefit to consumers from the final rule. 

However, as these prices are likely to be 

more salient to consumers, the CFPB 

expects there to be more efficient 

competition which will limit the extent 

to which covered financial institutions 

are able to pass along price increases (or 

net interest decreases) to consumers. 

Furthermore, and as mentioned above, 

any offsetting changes in prices are 

likely to be less regressive than 

overdraft fee revenue and thereby would 

replace a cross-subsidy from 

supernormal profits on a product used 

primarily by more resource constrained 

consumers.304

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. 

Thus, consumers that end up with less 

access to overdraft credit due to this 

final rule (and therefore more declined 

transactions) are not likely to pay fees 

on these types of transactions that they 

attempted but that were not authorized. 

Other types of declined transactions 

might trigger NSF fees to the extent 

those fees are not subject to the penalty 

fees limitation in § 1026.52(b), although, 

as noted earlier, a significant majority of 

supervised entities subject to this final 

rule eliminated NSF fees during 2022 

and early 2023. 

iii. Responses by Consumers 

A lower price for non-covered 

overdraft credit will 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 will 

likely provide net benefits. Inattentive 

consumers, for whom overdraft has 

already often been a mistake, will 

continue to be unlikely to pay attention 

to and rationally consider the lower cost 

of overdrawing their balance, and will 

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 305

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 final 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-of-credit 

disclosures required for covered 

overdraft credit make its use more 

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

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. 

While the rate of consumers switching 

depository institutions is relatively low, 

some consumers may also choose 

different depository institutions as 

account terms change as a result of the 

final 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 final rule. 

To the extent that marginal consumers 

could expect to pay a predictable and 

lower amount for checking overall, the 

final rule will encourage unbanked or 

underbanked customers to return to the 

banking system and gain access to 

deposit insurance and the low-cost 

payments system banks provide. 

Overdraft use might also change 

because very large financial institutions 

will need to disclose newly covered 

overdraft credit to consumers as a credit 

product, which can only help them. For 

consumers who will use overdraft more 

because of this, their increased use may 

suggest that they will be deliberately 

taking advantage of a product worth its 

price for them. For consumers who will 

use overdraft less after these changes, 

better information might correct prior 


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misunderstandings and prevent further 

mistakes. 

Disclosure as a credit product will 

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 will 

bring down prices among competitors. 

For example, Regulation Z requires 

disclosure of annual percentage rates, 

which aid consumers in comparing the 

cost of credit across products. 

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 less 

attentive consumers and are thus more 

likely to benefit from the final rule. 

iv. Responses by Financial Institutions 

Not Covered by the Final Rule 

The final rule will only apply to very 

large financial institutions and will not 

lead to any new compliance costs for 

financial institutions not covered by the 

final rule. 

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 final rule 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 it is 

difficult to predict with certainty as to 

how very large financial institutions 

will 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 final rule will 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. 

As it did for consumers, the CFPB has 

carefully considered the various causes, 

mediating channels and modulating 

responses affecting costs and benefits to 

covered persons, 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 final rule for covered 

persons. 

In particular, the final rule will 

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 final 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. 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 will need to update these 

systems to make sure they accurately 

disclose and charge the new lower fees. 

If they decide to offer covered overdraft 

credit instead to any customer, then the 

disclosures will 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 will 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 

$5.2 billion. This revenue impact on 

covered persons is limited by the final 

rule’s design, which allows depository 

institutions to collect their costs and 

losses in overdraft fees. part IV.D.3 

details why the CFPB believes that the 

$5 benchmark fee will allow some very 

large financial institutions to cover their 

costs and losses. Where the benchmark 

fee will not allow this, fees set based on 

the breakeven standard will allow 

institutions to recover their costs and 

losses over time. This mechanism 

ensures that even entities that will see 

less revenue due to this final rule need 

not take losses on overdraft credit, 

unless they charge lower fees than the 

final rule will 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 final 

rule will have broader implications on 

counterparties, competitors, or new 

entrants, or elsewhere in the economy. 

Such considerations are too speculative 

for this impact analysis. 

F. Potential Benefits and Costs to 

Consumers and Covered Persons of 

Further Provisions of the Proposed Rule 

The final rule will also apply the 

Regulation E compulsory use 

prohibition to covered overdraft credit 

provided by a very large financial 

institution. The rule does not amend the 

Regulation Z prohibition against offset, 

nor the Regulation Z provision 

permitting periodic deductions. The 

final rule’s approach to these provisions 

will 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 will give them 

additional control over their finances, 

though they might be overoptimistic 

about their future repayment discipline, 

and mistakenly turn down automatic 


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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 will 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 

will 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. 

1. Applying CARD Act Provisions of 

Regulation Z to Covered Overdraft 

Credit 

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 will 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 using 

hybrid debit-credit cards that access 

covered overdraft credit will also benefit 

from the final 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 final rule will also 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 will clarify that a very large 

financial institution must treat existing 

deposit accounts with above breakeven 

overdraft credit that is currently noncovered overdraft credit, but that the 

institution chooses to provide as 

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, 

will then be subject to the CARD Act 

protections in subpart G of Regulation 

Z. 

Section 1026.51 will 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 

benefitting from the ability-to-pay 

regulation’s 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 overdrawn amounts every 

month. 

Section 1026.52(a) will 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) will 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 will be 

subject to limitations under 

§ 1026.52(b), providing further benefits 

to consumers who would have paid 

such fees. For example, § 1026.52(b) 

will 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, will benefit by not 

being charged these fees. Similarly, 

financial institutions that would have 

received NSF fee revenue from these 

transactions will 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 will 

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. 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 final rule will 

impose some costs on the depository 

institution. 

Under the final rule, above breakeven 

overdraft credit will no longer qualify as 

‘‘incidental credit’’ under § 1002.3 and 

thus will be newly subject to certain 

requirements under Regulation B, 

including with respect to providing 

notice and record-keeping. These 

obligations will have costs to covered 

persons which are detailed in the 

Regulation B Supporting Statement that 

has been filed with OMB in connection 

with this final rule and are available as 

part of its public docket. 

2. Potential Interactions With Other 

Regulations 

The final rule, including 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. Under the 

baseline, covered overdraft will be 

particularly affordable at Federal credit 


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306Cox et al. (2021) identified the unbanked in 

the universe of tax records as those not listing an 

account for rebates or payment over a 10 year 

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

See Cox 2021 Study. The Census links ZCTAs to 

an urban area (or none). 

307See U.S. Small Bus. Admin., Table of size 

standards, https://www.sba.gov/document/supporttable-size-standards (last updated June 4, 2024). 

unions and whenever MLA caps and 

other potential usury limits apply. As 

much as covered overdraft credit 

remains or becomes available in these 

scenarios under the final rule, it will be 

particularly beneficial to consumers and 

will entail a loss of revenue for covered 

persons as these regulations will restrict 

the interest rates at which credit can be 

extended to covered consumers. Due to 

the effects of these laws, covered 

overdraft may be less frequently offered 

to affected consumers. The CFPB has 

not attempted to quantify the effects of 

such changes because 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. 

G. Potential Impacts on Depository 

Institutions and Credit Unions With $10 

Billion or Less in Total Assets, as 

Described in CFPA Section 1026 

As this final rule applies only to 

financial institutions with more than 

$10 billion in total assets, the CFPB 

expects no specific impact on small 

entities directly. Part VII.D.3 above 

discusses how the CFPB understands 

the final rule’s indirect impact on these 

entities. 

H. Potential Impacts on Consumer 

Access to Credit and on Consumers in 

Rural Areas 

As discussed above, the final rule may 

lead to an increase in overdraft credit 

regulated by TILA and Regulation Z, 

and for remaining non-covered 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 final 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.306 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 will 

likely experience similar impacts from 

the final 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 

Board. 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 will 

have as much access to newly 

underwritten covered overdraft credit as 

the rest of the United States. 

VIII. 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 final rule because 

the final rule, if adopted, will 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.307

As this final 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 the final rule will 

not have a significant economic impact 

on a substantial number of small 

entities. Thus, a FRFA is not required 

for this rule. 

In the notice of proposed rulemaking, 

the Director certified that the final rule, 

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 was required for this final rule. 

The CFPB requested comment on its 

analysis and any relevant data. 

The CFPB received a number of 

comments on its RFA analysis from 

industry trade groups, financial 

institutions that would not be 

considered ‘‘very large financial 

institutions,’’ and at least one consumer 

advocate commenter. The industry trade 

groups and financial institutions 

asserted that the CFPB should have 

convened a SBREFA panel for the rule 

and that the RFA in the 2024 proposal 

did not have a sufficient factual basis. 

These industry commenters generally 

stated that the rule would substantially 

affect small and mid-sized financial 

institutions as they would face 

competitive market pressure to decrease 

overdraft prices if very large financial 

institutions decrease overdraft prices to 

comply with the rule. The consumer 

advocate commenter stated that the rule 

would not have a significant impact on 

a substantial number of small entities 

even if the CFPB lowered the threshold 

to $850 million or more in assets. 

Any change in overdraft pricing by 

small and mid-sized financial 

institutions due to competitive 

pressures would be an indirect effect of 

this final rule. Indirect effects fall 

outside the scope of the RFA. 

IX. 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 final rule amends 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, as well as 12 CFR 

1005 (Regulation E), which implements 

the Electronic Fund Transfer Act, which 

is assigned OMB control number 3170– 

0014, which expires 5/31/2025. 

However, this final 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 final rule and are 

available as part of its public docket. 


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308The CFPB notes that this severability clause is 

not codified but forms an operative part of the rule. 

The CFPB has a continuing interest in 

the public’s opinions regarding this 

determination. At any time, comments 

regarding this determination may be 

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. 

X. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the CFPB will 

submit a report containing this rule and 

other required information to the U.S. 

Senate, the U.S. House of 

Representatives, and the Comptroller 

General of the United States at least 60 

days prior to the rule’s published 

effective date. The Office of Information 

and Regulatory Affairs has designated 

this rule as a ‘‘major rule’’ as defined by 

5 U.S.C. 804(2). 

XI. Severability 

The CFPB proposed the following 

statement regarding severability and 

received no comments. Accordingly, the 

CFPB is finalizing it as proposed.308

If any provision of this rule, 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. For 

example, if the $5 benchmark in 

§ 1026.62(d)(1)(ii) is overturned, the 

breakeven method under 

§ 1026.62(d)(1)(i) will remain in effect, 

meaning very large financial institutions 

could charge overdraft fees in 

compliance with TILA, or use the 

breakeven exemption, but would not be 

able to use the $5 safe-harbor 

benchmark. 

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 amends 12 parts 

1005 and 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, revise 10(e)(1) 

Credit; and 

■ b. Under Section 1005.17— 

Requirements for Overdraft Services, 

revise 17(a) Definition. 

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 prepaidcredit 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 prepaidcredit 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 


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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. 

* * * * * 

Section 1005.17—Requirements for Overdraft 

Services 

17(a) Definition 

1. Exempt securities- and commoditiesrelated 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, a charge or 

combination of charges, including a per 

transaction fee, imposed on a covered 

asset account when overdraft credit is 

extended is not comparable to the 

following fees or charges imposed on a 

checking or other transaction account 

that does not have overdraft credit: 

(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. 

* * * * * 

■ 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. 


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106838 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

(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 paragraph (d) of this 

section. 

(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 paragraph (a)(2) of this 

section. 

(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 (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) $5. 

(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. 

(3) For purposes of paragraph (d)(2) of 

this section, a cost or charge-off loss is 

specifically traceable if it has a direct 

relationship to the provision of noncovered overdraft services and the very 

large financial institution can provide 

evidence to demonstrate that direct 

relationship. 

(4) For purposes of paragraph (d)(1) of 

this section, a charge or combination of 

charges includes all revenue received in 

connection with an overdraft 

transaction, including, but not limited 

to, 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. 

(5) When calculating the pro rata 

share of its total direct costs and chargeoff losses for providing non-covered 

overdraft credit in the previous year, a 

very large financial institution must 

include all non-covered overdraft 

transactions from the previous year in 

its calculation. 

(6) For purposes of paragraph (d)(1)(i) 

of this section, the term ‘‘previous year’’ 

means a period that encompasses, at the 

very large financial institution’s option, 

any of the following periods: 

(i) The prior calendar year, 

(ii) Any 365-day period that begins 

within the prior calendar year, 

(iii) The prior four financial quarters, 

or 

(iv) The very large financial 

institution’s prior accounting year. 

■ 9. In Supplement I to Part 1026— 

Official Interpretations: 

■ a. Under Section 1026.2—Definitions 

and Rules of Construction revise 

2(a)(14) Credit, Paragraph 2(a)(15), and 

2(a)(20) Open-End Credit; 

■ b. Under Section 1026.4—Finance 

Charge revise Paragraph 4(b)(2) and 

4(c)(3); 

■ c. Under Section 1026.12—Special 

Credit Card Provisions revise the 

introductory text, and Paragraph 

12(a)(1), Paragraph 12(a)(2), 12(c) Right 

of Cardholder To Assert Claims or 

Defenses Against Card Issuer, and 

12(c)(1) General Rule; 

■ d. Under Section 1026.55— 

Limitations on Increasing Annual 

Percentage Rates, Fees, and Charges, 

revise 55(a) General Rule; and 

■ e. Under Section 1026.57—Reporting 

and Marketing Rules for College Student 

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

student credit card. 

The revisions 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 


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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. 

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. Credit includes, for 

example, 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 

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 debitcredit card or hybrid debit-credit 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 purchase-price 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 prepaidcredit 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 prepaidcredit 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 openend 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 debitcredit 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 card 

accounts under an open-end (not homesecured) 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 homesecured) 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 


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credit feature accessible by a hybrid prepaidcredit card that is a charge card when that 

covered separate credit feature is a credit 

card account under an open-end (not homesecured) 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 homesecured) consumer credit plan, a card issuer 

of a hybrid prepaid-credit 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 open-end 

(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 home-secured) 

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-toperson 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 open-end credit, such a program 

would be considered a single, multifeatured 

plan. 

iv. With respect to a covered asset account 

as defined in § 1026.62, a plan includes, for 

example, 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 openend. 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 openend 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 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 

prepaid-credit 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 a financial 

institution assesses such charges on a 

covered asset account as defined in § 1026.62 

or a separate credit account, any service, 

transaction, activity, or carrying charges 

imposed by the financial institution for 

paying a transaction that overdraws a 

consumer’s covered asset account held at the 

financial institution are generally finance 


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charges unless they are otherwise addressed 

by § 1026.4(b)(2), (b)(12), or (c). See 

§ 1026.4(a), (b)(2), (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 self-replenishing 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 closedend 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 self-replenishing 

criterion. 

6. Verifications of collateral value. 

Creditors that otherwise meet the 

requirements of § 1026.2(a)(20) extend openend 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 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 and above breakeven 

overdraft credit as defined in § 1026.62(b)(1), 

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 § 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 as 

defined in § 1026.62. 

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 

debit-credit 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. 


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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 

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 


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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. 

* * * * * 

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 non-delivery 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 cashadvance 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 homesecured) 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 prepaid-credit 

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 prepaid-credit 

card to cover the amount of the purchase. 

B. A consumer uses a hybrid prepaid-credit 

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 prepaid-credit card or a hybrid debitcredit 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 


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106844 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

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 non-variable 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 nonvariable 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-in-terms 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 publicly-available 

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 

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 


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Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106845 

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 

prepaid-credit 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 debitcredit 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. 

* * * * * 

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 home-equity 

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 home-secured) 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. 2024–29699 Filed 12–27–24; 8:45 am] 

BILLING CODE 4810–AM–P 


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