In a July 31, 2014 Data Point, the Consumer Financial Protection Bureau (CFPB) concluded that consumers who opt in to overdraft services for debit card and ATM transactions put themselves at a “serious risk when using their debit card.” The Data Point is based on data from a set of large banks supervised by the CFPB. The CFPB reviewed account-level and transaction-level data in an attempt to better understand how overdraft practices affect consumers. The study was supplemented by other research and responses to a CFPB Request for Information issued to the public in February 2012. The report concluded that the majority of debit card overdraft fees are incurred on transactions of $24 or less and are repaid within three days; in other words, a consumer repairing the transaction fee within three days pays the equivalent of a 17,000 percent annual percentage rate (APR).
In 2010, federal regulators established, for the first time, an “opt in” requirement, whereby depository institutions were required to obtain a consumer’s consent before charging fees for allowing overdrafts on most ATM and debit card transactions. (The opt in requirements do not apply to checks or automated payments. Banks can choose to not cover these transactions and reject the check or automated payment; this usually results in a non-sufficient funds fee. Or, if the bank chooses to cover the difference, it can charge the consumer an overdraft fee.)
The CFPB appears to be concerned that despite the recent regulatory changes, a small group of consumers are paying significant overdraft fees, often for small amounts of money and for short periods of time. Indeed, according to the report, among the banks in the study, overdraft and non-sufficient funds fees represent over half of the fee income on consumer checking accounts. Moreover, the vast majority of overdraft fees are incurred by a mere 8 percent of accounts.
The CFPB is contemplating the consumer-protection mechanisms necessary to protect consumers from unreasonable overdraft fees and related services.