Dick Bove, a noted bank analyst from Rafferty Capital, recently published a research note on the CFPB’s draft rules for short-term lending. Bove concluded that the proposed rules will have two significant impacts:
- They will force a number of companies out of business.
- They will result in a surge in bank overdraft fees, which will be a “bonanza” for small banks in particular.
According to Bove, the CFPB’s proposal “does not eliminate the need for money on the part of the borrowers,” who will either turn to bank overdraft loans to deal with temporary cash shortfalls, or will “go to the grey markets to get the funds that they need.”
“One simple answer is to write more checks for amounts above what is held in the account and pay an overdraft fee. The effective rate for doing this could be over a thousand percent. However, since paying an overdraft fee is not paying interest, this form of borrowing is not impacted by the CFPB’s new rules.”
He concludes that “[w]hile there will be many losers based on what the government is proposing, there will be some very big winners,” as overdraft fees become a fast-growing revenue stream for banks in the absence of regulated non-bank credit options.