Expected CFPB Overdraft Rules To Hit Big Banks Hard

Posted on Fri, Jul 13, 2012

The Consumer Financial Protection Bureau may soon be wrapping up its probe into financial institutions' overdraft protection programs, and the end of the investigation is expected to lead to a new overdraft rule.

Industry experts say the CFPB is expected to propose a new rule that will require banks to stop clearing transactions in order from largest to smallest to maximize their fees, according to finance website TheStreet.com. The CFPB rule will fall in line with similar guidance from other federal agencies that have chimed in on overdraft protection programs, including the Federal Deposit Insurance Corp. The rule is designed to prevent banks from processing transactions with the largest dollar amounts first in order to bolster their service fee income.

While many smaller institutions, such as community banks and credit unions, do not engage in the practice of processing large dollar value transactions first, Deutsche Bank analyst Matt O'Connor issued a report showing 12 of the country's largest banks still do, TheStreet.com reports. This includes JPMorgan Chase, Wells Fargo, Bank of America and Regions.

The report shows that if the new overdraft processing rules go into effect, Bank of America and Regions are expected to take the largest hits to their revenues. Bank of America's 2013 earnings are projected to decline by 3 percent, or $480 million, while Regions will see revenue fall by 4 percent, or $62 million, the news source reports. 

Tags: Overdraft