In prepared remarks given on June 11, Consumer Financial Protection Bureau (CFPB) Director Richard Cordray summarized the CFPB’s preliminary report on the overdraft practices of banks and other financial institutions. Signaling an upcoming rulemaking after additional research is undertaken, Director Cordray stated,
This report describes a broad variety of different overdraft practices and different consumer experiences. It also raises concerns about the ability of consumers to anticipate and avoid overdraft costs. As I indicated at a field hearing on this subject last year, we recognize that federal agencies have addressed these issues in different ways at different times, and our review is intended to help develop more consistent federal oversight of these issues across financial institutions.
Director Cordray explained,
[t]he report has three major takeaways. First, the data show that opting in to overdraft coverage of ATM and debit card transactions makes consumers more vulnerable to increased costs and involuntary account closures…. A second takeaway is that financial institutions have very different policies, procedures, and practices that can be highly complex and difficult for consumers to understand, yet greatly affect whether and how often they will incur overdraft fees…. The third takeaway is how widely the outcomes for consumers vary across financial institutions. The average amount of annual overdraft charges in our study was $225. But consumers at some institutions paid an average of $147, while consumers at others paid $298, more than twice as much. Similarly, involuntary account closures because of overdraft ranged widely. Of the accounts that were open at some point in 2011, six percent were involuntarily closed by the end of the year. But the rate of involuntary closures appeared to vary by more than 14-to-1 among the financial institutions covered in our study. These wide variances raise further questions.
Director Cordray stated, “nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage. Moreover, our study shows progress in some areas in recent years in protecting consumers from harm.” However, Director Cordray also indicated that the CFPB will likely proceed to fashion a rule in this area after additional study:
Our findings raise concerns about the number of consumers who are incurring heavy overdraft fees or account closures, and the wide variations across institutions indicate that certain practices and procedures merit further analysis. We need to determine whether they are causing the kind of consumer harm that the federal consumer protections laws are designed to prevent….We are a data-driven agency, and we will continue to examine this subject carefully before taking action through a transparent policy process.
Director Cordray’s remarks are available here.