On February 22, 2012, the CFPB launched an inquiry into checking account overdraft programs with a view toward their impact on consumers. Among other issues, the CFPB is exploring whether a "penalty fee box" should be included on each consumer’s checking account statement. That "penalty fee box" would highlight the amount overdrawn, if any, and any overdraft fees charged by the consumer’s financial institution.
Concurrent with its announcement, the CFPB made a data request to various financial institutions and a Notice and Request for Information from the public that the CFPB anticipates will provide insight into overdraft practices. Expanding on the efforts other federal regulators have made in the past couple of years, the Bureau’s inquiry focuses on four principal areas: (1) whether financial institutions re-order financial transactions and process the largest transactions first, so as to maximize the number of transactions that may trigger an overdraft fee; (2) whether consumers are capable of avoiding overdraft fees and whether overdraft terms are structured in an understandable and coherent manner to allow consumers to evaluate whether alternative means of covering overdraft transactions are appropriate; (3) whether financial institutions are disseminating potentially misleading marketing materials regarding overdrafts; and (4) whether overdraft charges disproportionately impact low-income and young consumers. The CFPB also announced that it is launching a "What’s your overdraft status?" campaign, with the goals of encouraging consumers to know whether or not they have opted in to overdraft fees on certain transactions and educating consumers about their options to avoid penalty fees.
In explaining overdraft fees, Director Cordray’s February 22, 2012 prepared remarks at the CFPB Roundtable on Overdraft Practices in New York City suggested that in many instances, consumers are not even aware that it was possible for them to overdraw their account and have a substantial fee levied upon their account due to the overdraft. While applauding changes in overdraft policies in recent years, Mr. Cordray suggested that consumers may not have understood the risks and ramifications of overdraft protection or that one-sided advertising may have "bur[ied] information about the costs." This certainly confirms the CFPB’s suspicious attitude with respect to overdraft fees and suggests a pre-ordained skepticism of the business practice. Consequently, financial institutions that offer overdraft protection may wish to take a closer look at compliance with applicable requirements regarding overdraft practices, including the requirements of Section 1005.17 of Regulation E and the guidance issued by the other banking regulators. In particular, financial institutions may wish to review their marketing materials to ensure that those materials are consistent with industry practices and that they clearly and correctly identify what services are provided relating to overdraft protection and their respective costs.