While the CFPB is currently in the process of examining the consumer impact of overdraft programs, recent preliminary data revealed the impact the programs have on consumers.
As part of an effort to provide the consumer watchdog with information about the programs while it considers its final position on the matter, John M. Floyd & Associates partnered with Morrison & Foerster to conduct a number of surveys across 50 American financial institutions. The process involved data collection on patterns of overdraft program use, posting order that increases the costs to consumers, opt-in rates based on deceptive statements, and pressure and the disproportionate impact of the programs on young and low-income consumers, according to Credit Union Insight.
The inquiry found that there are two types of consumers who use overdraft programs – consumers who occasionally use the program and those who rely on overdraft protection to meet their financial needs. Occasional users, including individuals who incurred overdraft fees for debit and ATM transactions because they expected the institution to reject the transaction because it was likely to cause an overdraft, are less likely to understand the institution’s overdraft policies.
Recent news coverage has focused on the bank practice of reordering transactions in order to charge the customer the maximum possible overdraft fee, which is one of the most common consumer complaints regarding the programs. While consumer groups and some media outlets maintain that the practice is done intentionally, the study did not find that the institutions purposely reordered transactions to increase revenue, Credit Union Insight reports.
The study also found that while overdraft program opt-in rates for ATM and debit card transactions vary across institutions, the institutions followed regulatory guidelines that require a clear and easily understandable disclosure on opt-in and opt-out procedures.
Additionally, many of the institutions analyzed in the study expressed agreement with the FDIC’s position that regular users of overdraft programs were disproportionately low- to moderate-income and often younger consumers. Some institutions noted, however, that there are many middle- and high-income regular overdraft users, according to Credit Union Insight.