As CFPB Comment Deadline Looms, Allied Progress Releases Top 3 Reasons Why Director Kraninger Should Strengthen Overdraft Fee ‘Opt-In’ Rule

June 28, 2019

Washington D.C.– As the July 1st deadline nears for public comment ahead of the Trump CFPB’s review of the “opt-in” rule for overdraft fees on debit and ATM cards, consumer watchdog group Allied Progress rolled out the Top 3 Reasons why Director Kraninger should build on the rule’s success. The 2009 “opt-in” rule has saved consumers billions of dollars by barring the financial industry from charging fees on overdrafts paid on ATM and one-time debit card transactions unless consumers first consent to an overdraft ‘protection’ service and only after being provided notice of the service’s details. Even with these protections, the banking industry still managed to squeeze more than $11.5 billion in overdraft fees out of consumers last year, particularly from communities that can least afford them.

“No consumer should find themselves charged a $30 overdraft fee over a $3 cup of coffee because of some bank ‘protection’ plan they were misled into or have no memory signing up for, when they could have just had the card declined,”said Jeremy Funk, spokesman for Allied Progress. “The overdraft opt-in rule is designed to minimize this kind of scenario. The CFPB’s own research found this regulation has resulted in substantially fewer fees and less burden on consumers. Director Kraninger should not mess with its success, only build on it, like putting new measures in place that crack down on misleading marketing tactics to obtain opt-ins.What the bureau should not do is carve out special exceptions for smaller banking institutions that would open the floodgates to more overdraft fees. Punishing consumers with billions of dollars in additional and totally avoidable overdraft fees would do far more harm to the economy than good.” 

The Top 3 Reasons Why CFPB Should Double Down On, Not Water Down, Overdraft ‘Opt-In’ Rule: 

1)   The CFPB Has Found That Its Overdraft Rule Led To “A Material Decrease In The Amount Of Overdraft Fees Paid By Consumers.”

• In 2013, The CFPB Found That The Overdraft Rule “Led To A Material Decrease In The Amount Of Overdraft Fees Paid By Consumers.”“The Bureau has estimated in 2013 that the rule led to a material decrease in the amount of overdraft fees paid by consumers.” [“Overdraft Rule Review Pursuant to the Regulatory Flexibility Act,” Regulations.gov, 05/15/19]

2)    Half Of Consumers Who Have Gone Into Overdraft Do Not Recall Signing An Opt-In Agreement.

• The CFPB’s Current Overdraft Rule Requires Consumers To “Opt In To Give Their Accounts The Ability To Overdraft.” “Consumers must actually opt in to give their accounts the ability to overdraft. Financial institutions have been required by law since 2010 to give consumers a notice that explains the institution’s overdraft policies, including the fees and alternatives. (Consumer advocates say consumers should opt out and allow their cards to be declined at the register, rather than rack up overdraft fees.)” [Maria LaMagna, “Overdraft fees haven’t been this bad since the Great Recession,” MarketWatch, 04/02/18]
• But Half Of Consumers Who Have Gone Into Overdraft “Don’t Remember Ever Signing” An Opt-In Agreement, With Some Transactions Exempted From The Requirement. “Banks have been criticized, however, for making the opt-in agreements unclear. Half of consumers whose accounts have gone into overdraft don’t remember ever signing one, according to the Pew Charitable Trusts, a nonprofit based in Philadelphia. Plus, the opt-in agreements apply only for transactions that are not pre-authorized, such as a one-time debit card transaction (not a recurring one) or an ATM withdrawal.” [Maria LaMagna, “Overdraft fees haven’t been this bad since the Great Recession,” MarketWatch, 04/02/18]

3)  Most Overdraft Fees Are Charged For Transactions Of $24 Or Less And Are Repaid Within Three Days—An Equivalent Loan Would Have A 17,000% APR.

• In July 2014, The CFPB Found That “The Majority Of Debit Card Overdraft Fees Are Incurred On Transactions Of $24 Or Less And That The Majority Of Overdrafts Are Repaid Within Three Days” — Equivalent to a $24 Loan Paid Back In Three Days “Carry[ing] A 17,000 Percent Annual Percentage Rate (APR).” “[In July 2014], the Consumer Financial Protection Bureau (CFPB) released a report that raises concerns about the impact of opting in to overdraft services for debit card and ATM transactions. The study found that the majority of debit card overdraft fees are incurred on transactions of $24 or less and that the majority of overdrafts are repaid within three days. Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate (APR).” [“CFPB Finds Small Debit Purchases Lead to Expensive Overdraft Charges,” Consumer Financial Protection Bureau, 07/31/14]
• According To The CFPB, “Just 8% Of Account Holders Pay About 75% Of All Overdraft Fees.” “Sometimes, consumers are charged repeatedly when they continue to make charges on their account, before realizing they have overdrawn it. That can add up, particularly for consumers with low incomes and tight budgets. Just 8% of account holders pay about 75% of all overdraft fees, according to the Consumer Financial Protection Bureau.” [Maria LaMagna, “Overdraft fees haven’t been this bad since the Great Recession,” MarketWatch, 04/02/18]

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