On December 12, the CFPB issued a final rule, restricting the amount that certain financial institutions can charge for their overdraft service. As previously covered by InfoBytes, historically, the Fed exempted banks from credit disclosure requirements when an overdraft was needed to honor checks (for a fee). The proposed and now final rule changes that long standing rule for “very large financial institutions,” which are defined as banks and credit unions with more than $10 billion in assets. Under the new rule, overdraft fees will be considered “finance charges” on “overdraft credit” and subject to Regulation Z disclosure requirements unless the financial institution charges the benchmark fee ($5) or a “breakeven” fee (i.e., one that is not profit generating based on its own costs and losses using a standard set forth in the rule).

Accordingly, once the final rule becomes effective, if a financial institution with over $10 billion in assets wants to charge more than $5 for its overdraft service without complying with the Regulation Z disclosure requirements, it will need to determine its cost of “overdraft credit” pursuant to the CFPB’s specified methodology.

Among other things, the final rule (i) requires overdraft credit offered by covered institutions to be “structured as a separate account,” distinct from the asset account, (ii) applies portions of Regulation Z that implement the CARD Act to covered overdraft credit accessed by a hybrid debit-credit card, including underwriting requirements and limitations on penalty fees, and (iii) prohibits “compulsory use of preauthorized electronic fund transfers (EFTs) for repayment of covered overdraft credit provided by very large financial institutions.”

The final rule is effective October 1, 2025.