The Consumer Financial Protection Bureau has released a new, data-driven study examining how overdraft programs are used and managed across U.S. banks. Building on earlier research and regulatory changes, the report highlights how overdraft fees remain a significant source of bank revenue while raising ongoing concerns about consumer impact. With detailed findings on opt-in rates, fee concentration, and account closures, the study points to wide variations in practices across institutions. Those differences, the CFPB suggests, may warrant closer scrutiny as regulators consider whether certain policies are contributing to avoidable consumer harm.
In keeping with its mandate to use data-driven analysis, the CFPB released its study of overdraft use and practices today. The CFPB in the study analyzes results from a public request for information issued in 2012 and detailed study of overdraft programs across a set of banks. This paper builds on the 2008 FDIC overdraft survey used as the basis for the 2009 changes to Reg E pertaining to opt-in requirements. Primary findings for 2011 include:
• Opt-in rates averaged 16.5% for existing accounts and 22.3% for new accounts.
• Overdraft fees accounted for 61% of consumer fee income and 37% of deposit account service fee income on average.
• About 6% of accounts were involuntarily closed due to unpaid negative balances.
• Account processing procedures can have a material impact on overdraft fees.
“…our findings with respect to 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 to determine whether they are causing the kind of consumer harm that the federal consumer protections laws are designed to prevent. The CFPB will continue its study of overdraft programs, including through analysis of account -level data, to examine the extent to which particular policies magnify risks to consumers.”
As found in our analysis of overdraft programs, Mercator Advisory Group continues to believe the CFPB will focus any next round of overdraft fee legislation around key activities pertaining to transaction processing order, minimum transaction amounts to qualify for an overdraft fee, and total fees allowable per account.
