Dive Brief:

• A rule requiring banks to let customers opt out of overdraft protection before they incur a fee should stay in place because it's doing the job it was intended to do, two banking groups told the Consumer Financial Protection Bureau (CFPB) on Monday. 
• Under the rule, banks must notify customers if they’re about to make a debit card purchase or ATM withdrawal for which they don’t have enough money. If they proceed, they’ll be charged an overdraft fee. Customers must be given a chance to opt out of overdraft protection, which means if they go ahead with the transaction, they'll be denied. If they opt in, the transaction will go through but they’ll be charged a fee, typically more than $30 at the largest banks, according to the Center for Responsible Lending. 
• The rule, administered by the CFPB, was initially put in place by the Federal Reserve after the financial crisis 10 years ago. By law, the agency must determine whether the rule is overly burdensome to small businesses and needs changing or rescinding.

Dive Insight:

The American Bankers Association (ABA) surveyed its members earlier this year and found banks are in favor of the rule. According to members who responded to the survey, customers who use overdraft protection are aware of the fees and know they can opt out at any time. As a result, the rule helps customers make informed decisions about their money. 

“There is ample evidence ... the rule has worked as intended to promote informed consumer choice about overdraft services,” Jonathan Thessin, ABA senior counsel, told the CFPB in a letter on Monday. 

Independent Community Bankers of America (ICBA), which represents smaller banks, also says the rule works well. "Rest assured," the group says, "the current regulatory environment, coupled with the rule, work in tandem to protect the interests of consumers." A copy of the group's comments was made available to Banking Dive.

The groups say banks have made extensive changes to their overdraft services since the rule took effect. For example, banks are giving customers more opportunities to avoid fees. One way is by offering a grace period. Customers who pay the overdraft amount within 24 hours or, in some cases, nearly the whole amount, can get the fee waived. Small-dollar overdraft fees are being waived, too, in some cases. 

Congress is increasingly interested in banks' overdraft programs. New Jersey senator and Democratic presidential candidate Cory Booker introduced “The Stop Overdraft Profiteering Act,” S. 1595, in March to prohibit banks from charging overdraft fees on debit cards and ATM transactions and limit the overdraft fees on checks. It would also prevent banks from manipulating the order in which they process checks, a practice that, critics say, can be gamed to increase the number of checks requiring a fee.