The Consumer Financial Protection Bureau released a preliminary report on the overdraft practices of banks and other financial institutions on June 11, 2013. The report describes a broad variety of overdraft practices among nine financial institutions and different consumer experiences. The self-proclaimed consumer watchdog group’s intense focus on the overdraft issue has banks waiting for the other shoe to drop: new regulations aimed at limiting overdraft options.
According to CFPB director, Richard Cordray, the overdraft report “raises concerns about the ability of consumers to anticipate and avoid overdraft costs. As I indicated at a field hearing on this subject last year, we recognize that federal agencies have addressed these issues in different ways at different times, and our review is intended to help develop more consistent federal oversight of these issues across financial institutions.” (Emphasis added.)
Since 2009 when the Federal Reserve Board required depository institutions to secure affirmative consent (opt in) from account holders for overdraft coverage of ATM and point-of-sale debit card transactions before the institution could charge overdraft fees, about 16 percent of customers opted in. The CFPB overdraft report states that consumers who opted in for overdraft coverage ended up with higher account fees and more involuntary account closures than consumers who declined to opt in.
On June 25, two weeks after the CFPB issued its report, the American Bankers Association (ABA) and other trade groups participated in a CFPB presentation on the overdraft study. ABA staff explained the need for the CFPB to survey consumers broadly on their overdraft protection experience, questioning whether customer data from nine large banks used in the report adequately reflects a broad range of customer experiences across the industry.
The CFPB requested feedback from ABA and other groups as part of its continuing study. ABA plans to conduct its consumer opinion survey of frequent users of overdraft services. In this post-Dodd-Frank, heavy regulatory environment, we will be watching the issue to alert readers of further developments.
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