Experts say CFPB cutting overdraft fees could hurt consumers

Five trade organizations sent a letter to the Consumer Financial Protection Bureau (CFPB), stating that the removal of overdraft fees would negatively impact consumers financially. The CFPB is currently investigating what it calls "abusive overdraft fees" by banks, and a Dec. 2021 report from the bureau showed an increased reliance on overdraft and non-sufficient fund revenue (NSF).

The organizations that sent the letter were the American Bankers Association (ABA), Consumer Bankers Association (CBA), Credit Union National Association (CUNA), National Association of Federally-Insured Credit Unions (NAFCU) and National Bankers Association (NBA). They urged the CFPB to gather more information from consumers with the most affected bank accounts before making any decisions. 

"As expected, these reports have stimulated policy discussion about overdraft, but we are concerned that the reports lack important facts about overdraft services – namely, information about the consumers who use and value the product," the letter states. "Therefore, we write to offer suggestions for additional data development and analysis in order to promote our shared goal of understanding the market, the options available to consumers, and consumer understanding and experience with overdraft services."

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When it comes to overdraft fees, what should the CFPB investigate?

The trade organizations gave the CFPB a list of questions to ask about overdraft fees. The letter also that states overdraft protection could be used to avoid embarrassment or even eviction. The following items are what the five organizations say the CFPB should investigate, as stated in their letter:

• The features that these consumers seek when they open a deposit account
• Why these consumers elect to opt in to debit card overdraft protection
• What they understand about their ability to opt-out and whether they have ever exercised that right
• What occasions or needs typically prompt overdraft use
• Whether overdraft protection has helped avoid a late fee, meet an emergency need or avoid the embarrassment of a declined transaction
• Whether these consumers receive waivers of overdraft fees
• Whether these consumers are aware of, and qualify for, available alternatives for covering overdraft transactions
• Whether the consumer has prior experience using available alternatives for covering short-term liquidity needs
• Reasons for choosing overdraft protection over available alternatives
• Options for meeting short-term liquidity needs if access to overdraft protection is restricted or cut off entirely

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CFPB considers ending overdraft fees

The CFPB's December report indicated that banks pulled in more than $15 billion in overdraft and NSF revenue in 2019. Since then, some banks have eliminated or reduced their overdraft fees, including Capital One and Bank of America. However, in their letter, the trade associations cautioned the CFPB against taking action too quickly. 

"Before the Bureau takes further action, we urge you to conduct a study of consumers’ preferences regarding overdraft," the letter states. "Any policy action that may impair access to overdraft services should not be based on selective anecdotes or unsupported assumptions about consumer behavior but by seeking to understand the regular user of overdraft protection – why they use the product, what they understand about their ability to opt in and out, and what their preferences are relative to available alternatives. 

"We recommend that the Bureau focus on frequent users of overdraft, which constitute approximately 9% of all overdraft users, according to a 2017 bureau report, in order to develop data on regular users, the people that will be most affected by any changes to the regulatory treatment of overdraft," the letter continued.

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