A federal judge has allowed a pair of consumer groups to intervene to defend the Consumer Financial Protection Bureau’s $5 cap on overdraft fees charged by large banks and credit unions.
My Path and the Mississippi Center for Justice – two nonprofit organizations – moved to intervene as defendants Feb. 5, allegedly based on the fear that the CFPB, under new leadership, might “seek to jettison the Overdraft Rule, either via regulation or by a less-than-genuine defense of this action,” U.S. District Judge Carlton W. Reeves said in a court document Tuesday.
The judge permitted the consumer groups to proceed as intervenor-defendants in support of the rule, citing the recent change in administration.
“Had the administration and leadership of the CFPB not changed in January, the CFPB would have mounted a vigorous defense of the Overdraft Rule in this litigation,” Reeves wrote. “But the situation changed. The CFPB might now seek to abandon the Overdraft Rule…It may fall to the movants to defend the Overdraft Rule.”
The CFPB filed an appeal to stay the effective date of the overdraft rule – the day after the two nonprofits filed for intervention. However, the agency does not take any stance on the organizations’ appeal to intervene.
The banking plaintiffs opposed the intervention, alleging the consumer groups’ “presence would diminish their ability to negotiate with the CFPB and resolve this matter without consumer groups at the table.”
The judge dismissed the claim, saying the banking plaintiffs did not show the intervention would prejudice them.
“Surely, the bankers expected someone to defend the Overdraft Rule when they filed their suit,” Reeves said. “They are well-prepared with talented national lawyers.”
In December, the CFPB under former Director Rohit Chopra issued the final overdraft rule aimed at closing “a legal loophole” that would help save roughly $5 billion in annual overdraft fees.
The same day, the American Bankers Association, the Mississippi Bankers Association, the Consumer Bankers Association, America’s Credit Unions and three smaller lenders sued to block the CFPB’s rule, claiming it violates the Administrative Procedure Act. The rule is set to take effect Oct. 1.
“This wise decision gives consumer groups the chance to vigorously defend the CFPB’s overdraft fee rule against bankers scrambling to protect their junk fee profit centers,” Carla Sanchez-Adams, senior attorney at the National Consumer Law Center, said in a statement Wednesday.
Republican leaders in Congress have moved to block the CFPB's overdraft fee rule. House Financial Services Committee Chairman French Hill, R-AR, and Senate Banking Committee Chairman Tim Scott, R-SC, resolutions to overturn the rule, arguing that it would limit access to important financial services. They defended overdraft fees as promoting financial discipline.
In a statement Wednesday, Consumer Bankers Association CEO Lindsey Johnson said she is “grateful” that Hill is “protecting consumers’ access to overdraft services — particularly those who lack access to credit and use overdraft to pay for necessities like food and utilities.”
“This effort to invalidate the CFPB’s overdraft rule underscores the serious concerns lawmakers have about how this rule will negatively impact Americans and the long-term damage that government-imposed price controls have on this highly-competitive financial services market,” Johnson said.
The U.S. Chamber of Commerce and the Mississippi Economic Council contend that with a $5 cap on overdraft fees, large financial institutions would stop offering consumer-friendly features like grace periods, overdraft fee waivers for certain transactions, or limits on the number of overdraft fees a consumer might incur daily.
