DOEREN MAYHEW Continued from page 3
While the agency is not proposing any changes to the regulatory requirements for smaller financial institutions , the CFPB will continue to monitor the market and analyze whether the regulatory requirements should change for them as well . The proposal seeks comment on its preliminary determination to apply the proposed rule only to very large financial institutions , and on whether $ 10 billion is an appropriate threshold for defining large financial institutions .
Overdraft Credit
The proposal defines overdraft credit as any consumer credit extended by a financial institution to pay a transaction from a checking or other transaction account ( other than a prepaid account ) held at the institution when insufficient or unavailable funds exist in that account . The proposal adds a comment to clarify with respect to covered overdraft credit , a plan means a program where the consumer is obligated contractually to repay any credit extended by the creditor , even if the creditor retains discretion not to extend credit in individual transactions . Non-covered overdraft credits are overdraft credits not subject to a finance charge and is payable by written agreement in more than four installments .
Finance Charge Exception
Finance charge is defined in § 1026.4 ( a ) as the cost of consumer credit as a dollar amount . Regulation Z currently excludes certain fees or charges imposed by a financial institution for paying items that overdraw an account from the definition of finance charge , unless the payment of such items and the imposition of the charge were previously agreed upon in writing . Additionally , where the payment of such items and imposition of the charge were previously agreed upon in writing , when a creditor imposes a service , transaction , activity or carrying charge for each item resulting in an overdraft on an account , such fees are excluded from the definition of finance charge if they do not exceed the charges imposed for paying or returning overdrafts on a similar transaction account that does not have such a written agreement .
The proposal changes the exclusions to the definition of a finance charge to nearly all service , transaction , activity , and carrying charges imposed on covered asset accounts . This includes fees commonly known as transfer fees for moving funds from overdraft lines of credit to covered asset accounts , would be finance charges under Regulation Z , unless subject to another exclusion or limitation . The proposal specifies any service , transaction , activity or carrying charge imposed on the covered asset account is a finance charge to the extent the charge exceeds a comparable charge imposed on a checking or other transaction account that does not have covered overdraft credit tied to it .
Regulation Z currently provides a charge imposed by a financial institution for paying items which overdraw or increase an overdraft in a checking account is not a finance charge unless the payment of such checks and the imposition of such finance charge were previously agreed upon in writing . The proposal adds a new sentence of the rule stating this no longer applies to above breakeven overdraft credit . Above breakeven overdraft credit is an overdraft credit extended by a very large financial institution to pay a transaction on which , as an incident to , or a condition of , the overdraft credit , the institution imposes a charge or combination of charges exceeding the average of its costs and charge-off losses for providing non-covered overdraft credit . The CFPB feels this change returns the exception to its original conception – excepting overdraft services from Regulation Z when offered as a courtesy or accommodation to members / customers . The agency finds where a financial institution sets its overdraft fees at or below its breakeven point , it provides a courtesy service to consumers who overdraw their accounts . They believe the finance charge exception should continue to apply to overdraft fees set at , or below , the breakeven point , so large financial institutions have the option to recover their costs and losses associated with providing non-covered overdraft credit to consumers , without having to comply with Regulation Z .
Above Breakeven Overdraft Credit
According to the CFPB , applying Regulation Z would benefit consumers by ensuring above breakeven overdraft credits are disclosed as a credit product and treated like other credit products . It would make it easier for consumers to compare the cost of such credit with the cost of other credit products , such as linked credit cards , because institutions
04 | VIEWPOINTS : REGULATORY COMPLIANCE EDITION