CPFB Disclosure Could Deal Consumer Overdraft Fees a Hefty Blow


"These disclosure prototypes, if adopted, would be meant to help people make more informed choices as to whether they wish to be subject to debit card and ATM overdraft fees", the CFPB's director Richard Cordray said on a call with reporters. Meanwhile, consumers who did not sign up for overdraft protection, but were just as likely to draw down their checking accounts, racked up just five fees for their overdrawn account, at around $30 per incident. A regulatory change that became effective in 2010 requires that, for banks to charge you an overdraft fee on a debit card purchase or ATM withdrawal, you first have to opt-in to its overdraft service.

The U.S. Consumer Financial Protection Bureau said on Wednesday it had ordered JPMorgan Chase & Co (JPM.N) to pay $4.6 million for allegedly failing to make sure it reported accurate information for checking account screening reports. The research shows that 9 percent of accounts are frequent overdrafters and they incurred 79 percent of overdraft fees.

Generally, the $34 overdraft fees are charged for purchases that average just over $20, the CFPB found. A survey done by the Pew Charitable Trusts shows "large majorities of those who paid an overdraft penalty prefer that a transaction be declined rather than overdraw an account", indicating that existing disclosure and fee practices may be insufficient to fully educate consumers.

Overdraft protection isn't automatic. If a consumer doesn't opt in to the service, which costs nothing until it kicks into action, their transaction can simply be refused because they don't have enough money in the account. Director Cordray: "This makes debit card and ATM overdraft a very expensive way to cover a small cash shortfall".

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The CFPB also released boilerplate "prototype" form that agency leaders say banks should use to disclose how overdraft fees work before customers opt into those checking accounts.

Fintech companies, meanwhile, are popping up with mobile phone money management apps to help millennials avoid overdraft fees. "Consumers often are paying $34 to have the bank spot them $24 or less for no more than a few days", Cordray said.

"Don't opt for overdraft protection unless you are certain you can afford it", says Pamela Banks, a senior policy counsel for the Consumers Union.

Many banks that rely on overdraft fees for a substantial chunk of their revenue and have reported to their investors that this source of business is declining as customers opt-out.