Overdraft Protection Act of 2021
Bill: H.R.4277 | Sponsor: Rep. Maloney, Carolyn B. (D-NY)
Policy area: Finance and Financial Sector

Summary:
Overdraft Protection Act of 2021
This bill prohibits a financial institution from engaging in unfair or deceptive acts in connection with overdraft coverage.
Each financial institution that offers overdraft coverage for accounts must disclose overdraft coverage fees. It must also disclose that
A financial institution must provide certain other disclosures regarding its overdraft protection program, including prompt notification of the account's overdraft status.
The bill limits the number of overdraft fees a consumer may be charged each month and year, and provides that such fees must be reasonable.
The bill prohibits an overdraft coverage fee if the overdraft results solely from a debit hold amount that exceeds the actual dollar amount of the transaction.
The bill also prohibits a financial institution from

To amend the Truth in Lending Act to establish fair and transparent 
practices related to the marketing and provision of overdraft coverage 
      programs at financial institutions, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Overdraft Protection Act of 2021''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress finds the following:
            (1) Overdraft coverage is a form of short-term credit that 
        financial institutions market for consumer accounts. 
        Historically, financial institutions covered overdrafts for a 
        fee on an ad hoc basis.
            (2) With the growth in specially designed software programs 
        and in consumer use of debit cards, overdraft coverage for a 
        fee has become more prevalent.
            (3) Many financial institutions market a range of overdraft 
        options but aggressively encourage consumers to consent to the 
        most expensive option, where a high flat fee is collected for 
        every individual overdraft transaction.
            (4) Many financial institutions collect a high flat fee, 
        including for small dollar transactions, each time the 
        institution covers an overdraft, impose multiple overdraft 
        coverage fees within a single day, and charge additional fees 
        for each day during which the account remains overdrawn.
            (5) Such abusive practices in connection with overdraft 
        coverage fees have deprived consumers of meaningful options and 
        placed significant financial burdens on low- and moderate-
        income consumers.
            (6) African Americans and Latinos are disproportionately 
        harmed by overdraft coverage fees and more likely to pay 
        multiple overdraft coverage fees annually.
    (b) Purpose.--It is the purpose of this Act to protect consumers by 
limiting abusive overdraft coverage fees and practices, and by 
providing meaningful disclosures and consumer choice in connection with 
overdraft coverage fees.

SEC. 3. DEFINITIONS.

    (a) Additional Definitions.--Section 140B of the Truth in Lending 
Act, as added by section 4, is amended by adding at the end the 
following new subsection:
    ``(o) Definitions Relating to Overdraft Coverage.--For purposes of 
this section:
            ``(1) Check.--The term `check' has the same meaning as in 
        section 3(6) of the Check Clearing for the 21st Century Act (12 
        U.S.C. 5001 et seq.), other than a travelers check.
            ``(2) Financial institution.--The term `financial 
        institution' has the same meaning as in the Electronic Fund 
        Transfer Act (15 U.S.C. 1693a(9)).
            ``(3) Nonsufficient fund fee.--The term `nonsufficient fund 
        fee' means a fee or charge assessed in connection with an 
        overdraft for which a financial institution declines payment.
            ``(4) Overdraft.--The term `overdraft' means, in a 
        withdrawal by check or other debit from a consumer account in 
        which there are insufficient or unavailable funds in the 
        account to cover such check or debit, the amount of such 
        withdrawal that exceeds the available funds in the account.
            ``(5) Overdraft coverage.--The term `overdraft coverage' 
        means the payment of a check presented or other debit posted 
        against a consumer account by the financial institution in 
        which such account is held, even though there are insufficient 
        or unavailable funds in the account to cover such checks or 
        other debits.
            ``(6) Overdraft coverage fee.--The term `overdraft coverage 
        fee' means any fee or charge assessed in connection with 
        overdraft coverage, or in connection with any negative account 
        balance that results from overdraft coverage, unless such fee 
        or charge is imposed in connection with--
                    ``(A) an extension of credit through an overdraft 
                line of credit program where such fee or charge was 
                considered a finance charge under this title as in 
                effect immediately prior to the enactment of the 
                Overdraft Protection Act of 2021; or
                    ``(B) any transfer from an account linked to 
                another account.
        Such fee shall be considered a `finance charge' for purposes of 
        section 106(a), but shall not be included in the calculation of 
        the rate of interest for purposes of section 107(5)(A)(vi) of 
        the Federal Credit Union Act (12 U.S.C. 1757(5)(A)(vi)).
            ``(7) Overdraft coverage program.--The term `overdraft 
        coverage program' means a service under which a financial 
        institution assesses an overdraft coverage fee for overdraft 
        coverage.
            ``(8) Account.--The term `account' has the same meaning as 
        in the Electronic Fund Transfer Act (15 U.S.C. 1693a(2)).''.
    (b) Conforming Amendment.--Section 107(5)(A)(vi) of the Federal 
Credit Union Act (12 U.S.C. 1757(5)(A)(vi)) is amended by inserting ``, 
other than an overdraft coverage fee, as defined in section 140B(o) of 
the Truth in Lending Act'' after ``inclusive of all finance charges''.

SEC. 4. FAIR MARKETING AND PROVISION OF OVERDRAFT COVERAGE PROGRAMS.

    (a) In General.--Chapter 2 of the Truth in Lending Act (15 U.S.C. 
1631 et seq.) is amended by adding at the end the following new 
section:
``Sec. 140B. Overdraft coverage program disclosures and consumer 
              protection
    ``(a) Prohibitions.--No financial institution may engage in acts or 
practices in connection with the marketing of or the provision of 
overdraft coverage that are unfair, deceptive, or designed to evade the 
provisions of this section.
    ``(b) Marketing Disclosures.--Each financial institution that 
provides or offers to provide overdraft coverage with respect to 
accounts held at that financial institution shall clearly and 
conspicuously disclose in all marketing materials for such overdraft 
coverage--
            ``(1) any overdraft coverage fees with respect to such 
        overdraft coverage; and
            ``(2) that by not opting in to such overdraft coverage--
                    ``(A) a consumer's transaction may be declined if 
                there are insufficient funds in the related account; 
                and
                    ``(B) the consumer will not be charged a fee if 
                such transaction is declined.
    ``(c) Consumer Consent Opt-In.--A financial institution may charge 
overdraft coverage fees with respect to the use of an automatic teller 
machine or point of sale transaction only if the consumer has consented 
in writing, in electronic form, or in such other form as is permitted 
under regulations of the Bureau.
    ``(d) Consumer Disclosures.--Each financial institution shall 
clearly disclose to each consumer covered by an overdraft coverage 
program of that financial institution--
            ``(1) that--
                    ``(A) the consumer may be charged for not more than 
                one overdraft coverage fee in any single calendar month 
                and not more than 6 overdraft coverage fees in any 
                single calendar year, per account; and
                    ``(B) the financial institution retains the 
                discretion to pay (without assessing an overdraft 
                coverage fee) or reject overdrafts incurred by the 
                consumer beyond the numbers described in subparagraph 
                (A);
            ``(2) the overdraft coverage fee as an annual percentage 
        rate, so as to permit consumers to meaningfully compare the 
        overdraft coverage to alternative forms of overdraft options 
        and other sources of credit;
            ``(3) information about any alternative overdraft products 
        that are available (such as linked accounts, lines of credit, 
        and alerts), including a clear explanation of how the terms and 
        fees for such alternative services and products differ; and
            ``(4) such other information as the Bureau may require, by 
        rule.
    ``(e) Periodic Statements.--Each financial institution that offers 
an overdraft coverage program shall, in each periodic statement for any 
account that has an overdraft coverage program feature, clearly 
disclose to the consumer the dollar amount of all overdraft coverage 
fees and nonsufficient fund fees charged to the consumer for the 
relevant period and year to date.
    ``(f) Exclusion From Account Balance Information.--No financial 
institution may include the amount available under the overdraft 
coverage program of a consumer as part of the account balance of that 
consumer and the account balance shall be more prominently displayed 
than any amount available under the overdraft coverage program.
    ``(g) Prompt Notification.--Each financial institution shall 
promptly notify consumers, through a reasonable means selected by the 
consumer, when overdraft coverage has been accessed with respect to the 
account of the consumer, not later than on the day on which such access 
occurs, including--
            ``(1) the date of the transaction;
            ``(2) the type of transaction;
            ``(3) the overdraft amount;
            ``(4) the overdraft coverage fee;
            ``(5) the amount necessary to return the account to a 
        positive balance; and
            ``(6) whether the participation of a consumer in an 
        overdraft coverage program will be terminated if the account is 
        not returned to a positive balance within a given time period.
    ``(h) Terminated or Suspended Coverage.--Each financial institution 
shall provide prompt notice to the consumer, using a reasonable means 
selected by the consumer, if the institution terminates or suspends 
access to an overdraft coverage program with respect to an account of 
the consumer, including a clear rationale for the action.
    ``(i) Overdraft Coverage Fee Limits.--
            ``(1) Notice and opportunity to cancel.--Each financial 
        institution shall--
                    ``(A) warn any consumer covered by an overdraft 
                coverage program who engages in a transaction through 
                an automated teller machine or a branch teller if 
                completing the transaction would trigger overdraft 
                coverage fees, including the amount of the fees; and
                    ``(B) provide to the consumer the opportunity to 
                cancel the transaction before it is completed.
            ``(2) Frequency.--A financial institution may charge not 
        more than one overdraft coverage fee in any single calendar 
        month, and not more than 6 overdraft coverage fees in any 
        single calendar year, per account.
            ``(3) Reasonable and proportional overdraft coverage 
        fees.--
                    ``(A) In general.--The amount of any overdraft 
                coverage fee that a financial institution may assess 
                for paying a transaction (including a check or other 
                debit) shall be reasonable and proportional to--
                            ``(i) the amount of the overdraft; and
                            ``(ii) the cost to the financial 
                        institution in providing the overdraft coverage 
                        for that transaction.
                    ``(B) Safe harbor rule authorized.--The Bureau, in 
                consultation with the Board of Governors of the Federal 
                Reserve System, the Comptroller of the Currency, the 
                Board of Directors of the Federal Deposit Insurance 
                Corporation, and the National Credit Union 
                Administration Board, may issue rules to provide an 
                amount for any overdraft coverage fee that is presumed 
                to be reasonable and proportional to the amount of the 
                overdraft and the cost to the financial institution in 
                providing the overdraft coverage for the transaction.
            ``(4) Posting order.--Each financial institution shall post 
        transactions with respect to accounts in such a manner that 
        minimizes overdraft coverage fees and nonsufficient fund fees.
    ``(j) Debit Holds.--No financial institution may charge an 
overdraft coverage fee on any category of transaction, if the overdraft 
results solely from a debit hold amount placed on a account that 
exceeds the actual dollar amount of the transaction.
    ``(k) Nondiscrimination for Not Opting In.--In implementing the 
requirements of this section, each financial institution shall provide 
to consumers who have not consented to participate in an overdraft 
coverage program, accounts having the same terms, conditions, or other 
features as those that are provided to consumers who have consented to 
participate in such overdraft coverage program, except for features of 
such overdraft coverage.
    ``(l) Nonsufficient Fund Fee Limits.--
            ``(1) In general.--No financial institution may charge any 
        nonsufficient fund fee with respect to--
                    ``(A) any transaction at an automated teller 
                machine; or
                    ``(B) any debit card transaction.
            ``(2) Reasonable and proportional overdraft coverage 
        fees.--The amount of any nonsufficient fund fee shall be 
        reasonable and proportional to the cost to the financial 
        institution directly associated with returning the transaction.
            ``(3) Safe harbor rule authorized.--The Bureau, in 
        consultation with the Board of Governors of the Federal Reserve 
        System, the Comptroller of the Currency, the Board of Directors 
        of the Federal Deposit Insurance Corporation, and the National 
        Credit Union Administration Board, may issue rules to provide 
        an amount for any non-sufficient fund fee that is presumed to 
        be reasonable and proportional to the costs to the financial 
        institution of returning the transaction.
    ``(m) Reports to Consumer Reporting Agencies.--No financial 
institution may report negative information regarding the use of 
overdraft coverage by a consumer to any consumer reporting agency (as 
that term is defined in section 603 of the Fair Credit Reporting Act 
(15 U.S.C. 1681a)) when the overdraft amounts and overdraft coverage 
fees are repaid under the terms of an overdraft coverage program.
    ``(n) Rule of Construction.--No provision of this section may be 
construed as prohibiting a financial institution from retaining the 
discretion to pay, without assessing an overdraft coverage fee or 
charge, an overdraft incurred by a consumer.''.
    (b) Technical Amendment.--The table of contents for chapter II of 
the Truth in Lending Act is amended by inserting after the item 
relating to section 140A the following new item:

``140B. Overdraft coverage program disclosures and consumer 
                            protection.''.

SEC. 5. REGULATORY AUTHORITY OF THE BUREAU.

    Not later than 24 months after the date of the enactment of this 
Act, the Bureau of Consumer Financial Protection (hereafter in this Act 
referred to as the ``Bureau'') shall issue such final rules and publish 
such model forms as necessary to carry out section 140B of the Truth in 
Lending Act, as added by this Act.

SEC. 6. EFFECTIVE DATE.

    (a) In General.--This Act and the amendments made by this Act shall 
take effect 1 year after the date of the enactment of this Act, whether 
or not the rules of the Bureau under this Act or such amendments are 
prescribed in final form.
    (b) Moratorium on Fee Increases.--
            (1) In general.--During the 1-year period beginning on the 
        date of the enactment of this Act, no financial institution may 
        increase the overdraft coverage fees or charges assessed on 
        accounts for paying a transaction (including a check or other 
        debit) in connection with an overdraft or for nonsufficient 
        funds.
            (2) Definitions.--As used in this section, the terms 
        ``financial institution'', ``overdraft'', ``overdraft coverage 
        fee'', ``account'', and ``nonsufficient fund fee'' have the 
        same meanings as in section 140B(o) of the Truth in Lending 
        Act, as added by this Act.
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