CFPB to tackle overdraft policies next

Frank Keating

The Consumer Financial Protection Bureau announced on Wednesday that it would begin an inquiry into debit and checking overdraft policies, possibly resulting in enforcement actions.

“With today’s technologies, consumers have more opportunities to access their checking accounts and cause overdrafts,” Cordray said, Bloomberg reports. “But, overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it.”

The CFPB will investigate through bank data and public input how transaction sequencing affects overdraft costs, as well as the quality of overdraft disclosures provided to consumers.

The Federal Reserve announced rules in 2009 that prohibit banks from charging fees for one-time debit and ATM transactions. In addition, the rules required that banks notify customers of overdraft policies rather than automatically enroll them in overdraft programs.

Economic research firm Moebs Services estimated last September that banks were set to bring in $38 billion in overdraft revenue in 2011. According to the CFPB, the average overdraft fee has increased by 17 percent over the past five years.

Overdraft fees still remain high, partly because banks used aggressive marketing techniques to encourage customers to enroll in the overdraft programs, the Center for Responsible Lending found in a 2010 study.

Richard Cordray, the director of the CFPB, said that while the agency is investigating the issue, the CFPB intends to take enforcement actions against banks that push customers into choosing overdraft protection services, Bloomberg reports.

American Bankers Association President and CEO Frank Keating expressed confidence in the CFPB inquiry, noting that consumers choose to participate in the overdraft programs.

“We are not concerned…as we believe that overdraft protection is a service that customers freely elect to have. They know the fee in advance and they can opt-out of overdraft protection at any time,” Keating said.

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