Consumer bureau mulls action on debit card overdrafts

The Consumer Financial Protection Bureau (CFPB) is considering action intended to make debit card users more aware of the fees banks charge for making a purchase without sufficient funds.

Banks will often allow debit card users to complete a transaction even if the cardholder’s account lacks enough money to do so. The bank will approve the transaction if the accountholder has opted-in for one-time card purchase overdrafting, but will charge a fee.

On Friday, the consumer bureau proposed four potential forms that banks could use to help consumers pick the best overdraft fee option for them. The templates are part of a broader bureau effort to study whether it should require banks to offer such forms.

The CFPB expressed concerns about the relatively small number of vulnerable consumers frequently paying overdraft fees, citing a bureau study of 40 million bank accounts scraped of personal information.

“Frequent overdrafters,” accounts with more than 10 overdrafts or insufficient funds fee charges per year, make up 9 percent of all studied bank accounts, according to results released Friday. But those accounts paid 79 percent of all overdraft and insufficient funds fees.

“Very frequent overdrafters,” accounts hit with more than 20 fees per year, were about 5 percent of all accounts studied, but paid more than 63 percent of all overdraft and insufficient fund fees.

The CFPB study also found that frequent overdrafters often suffer from below-average credit scores and lack a general purpose credit card. Those with credit cards often have lower credit limits than consumers who don’t frequently overdraft.

The agency noted that consumers who’ve opted in to one-time card payment overdrafts pay significantly more in fees despite only overdrafting their accounts a few more times on average. The four prototype forms CFPB issued are examples of what the bureau is considering requiring banks to issue.

Banking industry groups often fiercely opposed to the CFPB’s regulatory actions said they appreciated a chance to review the bureau’s plans, and called overdrafting a useful tool for consumers.

“Banks provide consumers with clear, concise procedures for opting into overdraft services,” said Consumer Bankers Association President and CEO Richard Hunt.

“With nearly half of Americans unable to meet a $400 emergency expense, overdraft is a voluntary service which provides consumers access to needed short-term liquidity. We look forward to working with the CFPB on this issue, and we appreciate their concern for providing consumers with clear disclosures.”

Carrie Hunt, executive vice president of government affairs for the National Association of Federally-Insured Credit Unions, said the group “strongly supports opt-in forms being clear and concise.”

“Consumers value having choices when it comes to financial products and services, and having the ability to opt into a service with a safe and accredited institution helps them cover their expenses in a convenient way.”