CFPB Lays Groundwork for New Rules on Overdraft Fees

CFPB Lays Groundwork for New Rules on Overdraft Fees

There's one hitch: Although you have to sign up for the so-called overdraft protection, over half of consumers say they don't even remember making a choice about it, according to Pew Charitable Trusts. Now, if a consumer is not enrolled in overdraft protection, the debit card transaction is declined at the point of sale but there is no fee.

The bureau has been studying overdraft since February 2012.

Since 2010, banks can not automatically enroll customers in "overdraft protection".

These fees are particularly troublesome for cash-strapped Americans, CFPB Director Richard Cordray said on a press call Thursday.

Prior to the change in the law, it might be days before consumers learned they had overdrawn their accounts. As only 57% of those who overdrafted between 10 and 20 times a year had a credit card, these consumers used their debit cards much more frequently.

This translates to the typical frequent overdrafter having 22 overdrafts compared to 18 for those who are not opted into protection.

If the customer made several of these purchases before learning the account was overdrawn, the fee total could be well over $100. Unsurprisingly, the study found that frequent overdrafters have lower credit scores, are more likely to be "credit constrained" than infrequent or non-overdrafters and are less likely to have a general objective credit card.

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These checking account holders typically have very little money in their accounts and subprime credit scores, meaning they would likely have trouble accessing traditional forms of credit. "We have stated we're considering overdraft regulations and we're at a pre-rule stage", Gregory Evans, a senior CFPB official, said Thursday on a call with reporters. The CFPB said it will continue to solicit feedback by testing the prototype forms with consumers.

The four one-page prototype model forms unveiled today mirror the Bureau's Know Before You Owe disclosures for mortgages and prepaid accounts, and are created to give consumers more clarity about a key financial decision.

The updated form is meant to "explain that the opt-in decision applies only to one-time debit card and ATM transactions and does not affect overdraft on checks and online bill payments", Cordray said. The overdraft form would be available on the CFPB website where banks would be able to plug in their specific program information and download it.

But thanks to new rules put in place in 2010, banks can't just arbitrarily charge you a fee: If you want this service, you have to opt in.

The agency's report says 79 percent of all overdraft and non-sufficient funds fees are paid by customers who frequently overdraw their accounts, and those customers comprised 9 percent of accountholders at the banks analyzed by the CFPB.

While the CFPB made it clear that it is not now in the rulemaking process that could require banks to use the prototypes, the agency is considering overdraft regulations and amending them.

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