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U.S. states urge CFPB not to dilute rule that limits bank overdraft fees

By Jonathan Stempel

By Jonathan Stempel

NEW YORK, July 2 (Reuters) - The attorneys general of New York and 23 other states plus Washington, D.C. have urged the Trump administration not to roll back a decade-old federal rule that limits the ability of banks to charge overdraft fees when customers spend more than they have in their accounts.

In a letter to Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), that was made public on Tuesday, the attorneys general, all Democrats, called the rule an "overwhelming success" that should not be watered down or scrapped.

They said the rule has helped customers make informed decisions about whether to sign up for overdraft protection on automated teller machine and debit card purchases, and there was no reason to believe the rule has harmed smaller lenders.

"If the CFPB rolls back this rule, it would put hard-working people in harm's way by allowing banks to charge more overdraft fees, all in the name of corporate greed," New York Attorney General Letitia James said in a statement.

A CFPB spokeswoman said the agency will complete its review by November. The CFPB has moved in a more business-friendly direction under President Donald Trump, a Republican.

Issued by the Federal Reserve Board in 2009, the overdraft rule requires banks and other financial services companies to obtain permission before charging overdraft fees, typically around $35, that could sock customers with big penalties on even small purchases such as a cup of coffee.

Consumer advocates believe the rule has helped many customers avoid being overburdened by fees. But some banking groups have said regulators should not impede their ability to offer overdraft services that customers want.

Banks collected more than $11.45 billion in overdraft fees in 2017, according to the Center for Responsible Lending, citing Federal Deposit Insurance Corp data for banks with over $1 billion of assets.

In a 2013 study, the CFPB found that the rule had materially reduced fees for many heavy overdrafters, but that customers with overdraft protection paid an average seven times more fees than customers who went without it.

The letter from the attorneys general, dated July 1, coincided with the end of a 45-day public comment period on the rule.

The CFPB is conducting its review pursuant to the Regulatory Flexibility Act, a 1980 law requiring federal agencies generally to assess the impact of their regulations on smaller businesses. (Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)