Written by Brandy Bruyere, Regulatory Compliance Counsel
Last week, in CFPB’s ongoing consideration of rulemaking in the area of overdraft programs, the bureau released a report on overdraft services. This report is based on consumer experiences with about 2 million accounts held at large banks under the bureau’s supervisory authority, meaning those financial institutions with over $10 billion in assets. The report concluded, among other things, that “the majority of debit card overdraft fees are incurred on transactions of $24 or less.” Other key findings include:
- Overdraft and other non-sufficient funds fees constitute the majority of checking fees that consumers incur;
- 8% of consumers account for almost 75% of all overdraft fees;
- The median amount of a transaction leading to an overdraft fee for all types of debits is $50;
- The propensity to overdraft an account is correlated with age, as 10.7% of consumers age 18-25 have over 10 overdrafts a year while only 2.8% of consumers over age 62 incur such frequent overdrafts; and
- Over half of consumers who overdraft return their accounts to a positive balance within three days, and 76% become positive again within a week.
The bureau indicated in its press release that it “plans further studies on how overdraft works and how it is affecting consumers” and “is also weighing what consumer protections are necessary for overdraft and related services.” In a press call regarding the release of the report, CFPB Director Richard Cordray’s prepared comments may provide some insight as to what kind of rulemaking we may see in this area:
“…Overdraft fees should not be ‘gotchas’ when people use their debit cards. But unfortunately, the wider use of debit cards means those who opt in for overdraft are likely to get charged more fees. Our study shows that more often than not, consumers who incur overdraft fees for using their debit card are doing so for small purchases of $24 or less.
Moreover, our study found that the majority of consumers put money back into their bank accounts within three days of their overdraft transactions – maybe their paychecks got posted or a deposit finally cleared. In fact, more than 75 percent have positive account balances within a week.
The result is that some consumers are essentially paying $34 – which is the typical overdraft fee – to have the bank spot them less than $24 for just a few days. If a consumer were to get a loan on those terms, that would equate to an annual percentage rate of over 17,000 percent…
I want to take pains to note that nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage. But we need to determine whether current overdraft practices are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent.” (Emphasis added.)
The bureau plans additional studies and meanwhile the prerule stage of rulemaking on overdrafts is scheduled to be ongoing until February, 2015 so it is unlikely that we will see a proposed rule soon. However, the bureau continues to signal a willingness to further regulate in the area of overdrafts.
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