CFPB Launches Inquiry Into Overdraft Practices

CFPB Launches Inquiry Into Overdraft Practices
Bureau Explores Ways to Help Consumers Avoid Overdraft Penalty Fees

Today, the Consumer Financial Protection Bureau (CFPB) launched an inquiry into checking account overdraft programs to determine how these practices are impacting consumers. As part of that inquiry, the CFPB is seeking public input on a prototype “penalty fee box” – a disclosure on a consumer’s checking account statement that would highlight the amount overdrawn and total overdraft fees charged.

“With today’s technologies, consumers have more opportunities to access their checking accounts and cause overdrafts,” said CFPB Director Richard Cordray. “But overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it. We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”

An overdraft occurs when a consumer spends or withdraws more money than is available in his or her checking account and the financial institution advances funds on the consumer’s behalf. Banks generally charge an overdraft fee for each transaction that they choose to cover. For point-of-sale debit card and ATM transactions, regulations by the Federal Reserve Board that became effective in 2010 prohibit a bank from charging the overdraft fee unless the consumer has opted-in. For check and online bill payments, as well as recurring debits, banks can charge an overdraft fee without any affirmative request from the consumer.

According to various industry sources, the average overdraft fee ranged from $30-$35 in 2011 and has increased by 17 percent over the past five years. A study by the Federal Deposit Insurance Corporation published in 2008 found that consumers who overdrew 20 or more times per year paid an average of $1,610 in overdraft fees annually.  Read more.