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08.04.17

CFPB Overdraft Disclosure Protoypes Could Foreshadow Regs

The CFPB has released a new overdraft study, along with four prototypes of “Know Before You Owe” disclosures, which the bureau is testing, possibly ahead of regulating checking account overdrafts.

The prototypes were created “to help customers understand the risks of opting into overdraft coverage,” after the CFPB study found that frequent overdraft users typically pay almost $450 more in fees than those who don’t opt-in to overdraft protection.

The study spotlights frequent overdraft users—consumers who attempted to overdraw their accounts more than 10 times in a 12-month period. The research shows that 9 percent of accounts are frequent overdrafters and they incurred 79 percent of overdraft fees.

What’s more, most of the frequent overdraft users are financially vulnerable, with lower daily balances and lower credit scores than people who do not overdraft as often, the CFPB said.

Another Clue for Future Regs

In its announcement about the study and the prototypes, the CFPB offered another clue about the direction of a potential rulemaking on overdrafts for checking overdrafts. (The bureau already has regulated overdrafts related to prepaid cards under its final prepaid accounts rule, much to the chagrin of the industry. One of the biggest complaints has been that overdrafts on prepaid cards are regulated more onerously than overdrafts for checking accounts.)

The bureau points out that federal regulations require opt-ins for overdrafts on most debit and ATM transactions, but they opt-ins aren’t required for overdrafts related to checks or electronic payments made through the ACH system, and on debit card payments set up on a recurring basis. That could be something the bureau will consider changing if it moves ahead with a proposed rulemaking on checking overdrafts.

The CFPB developed its prototypes through interviews with consumers, and is now testing them more widely.

If adopted, the updated prototypes could make it easier for banks to provide customers with the disclosure form, according to the bureau. The CFPB would make any new Know Before You Owe model overdraft form available on its website. Institutions would be able to plug their specific program information into the online form and then quickly download it for free, the bureau said.

This new approach could make it seamless for banks and credit unions to use a new model form within their existing compliance systems, and easier to update their disclosures following future overdraft program changes, according to the CFPB.

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