|August 26, 2014|
Previously published on August 20, 2014
On July 31st, the CFPB issued a report on overdraft charges. The study is based on a set of account-level and transaction-level data from several of the large depository institutions which the CFPB supervises. In addition, the study was supplemented by CFPB research derived from a February 2012 Request for Information issued to the public. The results of this recent study raised concerns at the CFPB. Despite 2010 regulatory amendments to Regulation E that imposed an "opt-in" regime for overdraft charges on debit card and ATM transactions, the CFPB is still concerned that "a small number of consumers are paying large amounts for overdraft, often for advances of small amounts of money for short periods of time."
Specifically, the report found:
- Debit card use is nearly three times that of check writing or online bill pay. According to the study, debit cards are the most common manner in which consumers access their checking accounts. Consumers use their debit cards for purchases about 17 times a month while writing fewer than three checks per month and making only about three automated debits per month.
- The majority of debit card overdraft fees are incurred on transactions of $24 or less. The majority of overdraft transactions for which a fee is incurred are $50 or less. Among consumers who opt-in for overdraft coverage on debit and ATM transactions, the majority of their overdraft fees are incurred on transactions of $24 or less.
- The majority of consumers cover any negative balance within three days of overdrawing their account. More than half of consumers who overdraw their accounts return their accounts to a positive balance within three days of overdrawing and more than 75 percent bring their accounts back to a positive balance within one week.
- The median overdraft charge is $34. The CFPB equated this average fee to a 17,000 percent APR on a loan of $24.
- Approximately one-fifth of consumers who opt-in overdraw their accounts more than 10 times per year. According to the study, 18 percent of opted-in accounts are overdrawn more than ten times per year. By comparison, only six percent of non-opted-in accounts are overdrawn more than 10 times per year. Not surprisingly, the study also found that opted-in accounts incur seven times more in overdraft fees per year than non-opted-in accounts.
Last year, the CFPB issued a report that raised similar concerns about whether consumers are able to understand and avoid overdraft charges. The report revealed disparities in overdraft programs among banks which raised a concern that the disclosure of overdraft programs and the related fees might be inadequate. The CFPB indicated that it intends to further study overdraft programs as it continues to consider rulemaking in the area, which is still in the pre-rule stage.