There are a few updates we would like to provide you with as we begin the week. Hopefully, you will find this information valuable as we continue to track regulatory and legislative action impacting the credit union industry.

Tax Bill Goes Before the House Committee with No Credit Union Taxation Included

The President’s “Big Beautiful Bill” – which is primarily a tax bill with cuts and possible increases in certain areas – has been drafted for action by the House Ways and Means Committee without any mention of credit union taxation.

While we have indicated in previous Client Updates that we feel the odds have been in our favor at 30-70 for no credit union taxation to be added to the current tax bill, you never know when Congress goes to work on the tax code.

Because tax bills must start in the House, and the Ways and Means Committee is the starting point for any tax legislation in the House of Representatives, it is quite significant that the bill has been drafted and sent to the committee with no mention of credit union taxation.

With the Republican majority in the House being pushed by the Speaker and House GOP leadership not to offer amendments to the bill and the Republicans having the votes to defeat any Democrat amendments, the odds have improved that credit unions may well prevail as in the past in defeating any effort to impose corporate income taxation on credit unions as not-for-profit financial cooperatives.

Yes, amendments could still be offered even though the House leadership is trying to avoid adding to the bill other issues that could sink its possibility of passage with such a slim majority in both houses of Congress. And, yes, changes can still be proposed if and when the bill goes to the Senate.

So, credit unions are not completely out of the woods yet on possible taxation. But the early action in the drafting of the bill that will go before the House Ways and Means Committee is a very strong sign that neither party in Congress has an appetite to take on 140 million credit union members to pick up a measly $3 billion a year in taxes when the current federal debt is at $35 trillion.

We will continue to monitor this issue throughout this Congress and until the final tax bill is voted upon and sent to President Trump for signature. And certainly credit unions and their trade associations at the federal and state levels need to continue to work the issue with their congressmen and senators.

However, this is clearly a good early development that seems to be a solid indicator that the bankers have made little progress in getting credit union taxation on the congressional agenda in this 2025 tax bill.

The odds have likely decreased from 30-70 to maybe 25-75 that credit unions will end up with taxation in this year’s tax bill. But a 25% chance is still something to watch and work to counter in Congress.

Today’s action, however, is a good solid step toward protecting the credit union tax exemption from its most recent assault by the banking industry. And, let’s face it, if the bankers were not pushing it, credit union taxation would not even be discussed in the halls of Congress.

It’s a political loser to potentially anger so many voters for such a little return in tax revenue. But it would make some local bankers happy. So it must continue to be monitored and the credit union position must continue to be advocated for at each opportunity with your member of Congress or Senator.

CFPB Pulling Back Almost 70 Guidance and Enforcement Letters

 The new Trump administration Consumer Financial Protection Bureau (CFPB) has today issued notice of an action to rescind for further review almost 70 guidance and enforcement letters issued during the Rohit Chopra-led era at the CFPB during the Biden administration.

A link to the announcement and letters rescinded is provided below:

https://public-inspection.federalregister.gov/2025-08286.pdf

Basically, even though the review of these letters could result in a handful of them being re-issued (even if revised considerably to be much less onerous), this indicates that the CFPB under the Acting Director Russell Vought is decidedly on a path toward less regulatory activism, less overreaching guidance into the day to day operations of financial institutions and a more balanced approach to examination, supervision and enforcement.

The next announcement to be watching will be if and when the CFPB begins to rescind some of its regulatory actions taken during the Chopra era such as the open banking rule, payday lending rule, collections rule, credit card late fee rule, remittance rule and several others that reports indicate are being targeted by Acting Director Vought.

As you already know, the CFPB overdraft rule has been repealed fully by action of both Houses of Congress under the Congressional Review Act. President Trump signed the repeal legislation today.

The overdraft rule is no longer on the books and would have to be re-proposed by some future CFPB Director, go through the entire comment period again and then be re-approved knowing that Congress has already expressed its will that the rule is beyond the reasonable scope of the CFPB.

Basically, this assures that – if overdraft restrictions are ever implemented at the federal level again – it will have to come from Congress in the form of a law and not from the CFPB, NCUA, Federal Reserve or any other regulatory agency as a regulation.

Overdraft Restrictions Now Becoming Popular at the State Level

 Although they would apply only to state chartered credit unions and banks, the overdraft fee restriction battle seems to now be moving to the state legislatures and assemblies – particularly in blue states like New York, Illinois, Oregon, Washington and California.

Only in New York has a bill restricting overdraft fees actually passed and been signed into law by the Governor. However, legislation has been discussed, prepared, announced or introduced in each of the other states listed above.

The New York statute seems to be the template legislation being discussed in other states at this time.

Essentially, Senate Bill S7031 which was the legislative language signed into law by Governor Hochul, significantly impacts financial institutions in New York that operate courtesy pay programs.

As reported by the New York Credit Union League, the following is a breakdown of the effects based on the bill’s language as it passed the Assembly and was signed into law.

• Ten-Day Grace Period Before Charging Fees (§ 135 & § 456): The most immediate and substantial impact would be the requirement to provide a ten-day grace period from the date of the transaction before imposing any overdraft or non-sufficient funds (NSF) fee. This directly challenges the current practice of charging fees shortly after an overdraft occurs. Institutions with courtesy pay programs would need to adjust their systems to track this ten-day period and refrain from charging fees during this time, giving account holders an opportunity to deposit funds to cover the overdraft.
• Potential Reduction in Overdraft Fee Revenue: By delaying the imposition of fees, the bill aims to reduce the number of overdraft fees charged. Customers who can deposit funds within the ten-day window would avoid the fee altogether, leading to a likely decrease in the revenue financial institutions generate from their courtesy pay programs.
• Reporting Requirements (§ 37-b): The bill mandates that all banking organizations under the Superintendent’s examination authority must report annually on the total revenue earned from overdraft and NSF fees, as well as the percentage of this revenue compared to their net income. This increased transparency could lead to greater scrutiny of these fee practices and potentially create pressure for institutions to lower their fees, including the courtesy pay charge. The first report, covering 2023 data, is due by August 31, 2026.
• Restrictions on Charging Fees for Certain Situations (§ 6-q):
  • “Authorize Positive, Settle Negative” (APSN): The bill prohibits charging overdraft fees on debit card transactions that were initially approved based on a positive balance if a later, unrelated transaction causes the balance to drop below the original charge amount by the time of settlement. This could prevent some instances where the courtesy pay fee is currently applied.
  • Insufficient Overdraft Protection Transfers: If a transfer from another account to cover an overdraft is insufficient to prevent the overdraft, the institution can only charge a single overdraft fee and cannot charge a separate fee for the insufficient transfer. This would prevent institutions from compounding fees in situations where a customer tries to use their overdraft protection.
  • Multiple Fees for the Same Transaction: The bill explicitly states that only one NSF fee can be charged per transaction, regardless of how many times it’s resubmitted. While this directly addresses NSF fees, it reflects a broader intent to limit the accumulation of fees related to a single instance of insufficient funds, which could influence the perception and justification of a fee for a single overdraft.
  • Operational and System Changes: Financial institutions with courtesy pay programs could need to make significant operational and system changes to comply with these new regulations. This includes modifying their transaction processing timelines, updating their fee charging mechanisms, and implementing the required reporting procedures.

In summary, Senate Bill S7031 directly challenges the current model of courtesy pay programs that charge a fixed fee for overdrafts by:

• Introducing a mandatory ten-day grace period.
• Increasing transparency through reporting requirements.
• Prohibiting fees in specific scenarios that currently might trigger a charge.
• Limiting the accumulation of fees.

While the bill doesn’t explicitly cap the amount of an overdraft fee, the ten-day grace period and the restrictions on how and when fees can be charged are likely to significantly reduce the instances where a courtesy pay fee would be applied and potentially the overall revenue generated from such programs.

Again, even though these state by state legislative actions would only apply to state chartered credit unions and banks, this is an indication that the overdraft issue is not completely dead even though the congressional repeal of the CFPB’s federal overdraft rule has put a stake in the heart of the federal effort at restricting overdraft fees – at least for the time being.

This will be an issue to continue to watch at the state level. It could have an impact on the number of state versus federal credit unions in those states that enact overdraft fee restrictions by law. Because the future of overdraft programs seems better positioned at the federal level than at the state level in these handful of states, where the trends in possible mergers and/or charter changes heads in the months and years to come will be interesting to watch.

Because of the strength of the credit union dual chartering system, credit unions have the ability to evaluate the best charter for their safety, soundness, financial, member service and growth opportunities. These attacks on overdraft programs in certain states could produce unintended consequences of fewer credit unions and banks being subject to these overdraft restriction laws as more and more state chartered credit unions look at the federal charter as more positive in this particular arena of regulation.

It will be an issue worth watching. And we will keep our eyes on it for you.

Until next time.

Dennis Dollar