Regulatory Practice Letter #14-15 | September 23, 2014 | KPMG | US
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Regulatory Practice Letter #14-15 | September 23, 2014

Regulatory Practice Letter #14-15 | September 23, 2014

Checking Account Overdrafts - CFPB Reports and Industry Updates


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Executive Summary

The Consumer Financial Protection Bureau’s (CFPB or Bureau) Office of Research recently released a Data Point report on Checking Account Overdrafts. The report builds on the CFPB’s June 2013 White Paper, which presented initial findings from the Bureau’s study of overdraft programs associated with consumer checking accounts. In that White Paper, CFPB Study of Overdraft Programs: A White Paper of Initial Data Findings, the CFPB concluded that overdraft programs can be costly to consumers who use them and that both consumer outcomes and policies related to overdraft programs can vary considerably across banks. The wide variations across institutions led the Bureau to also conclude that "certain practices and procedures may merit further analysis to determine whether they are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent."

For the 2014 Data Point report, the Bureau conducted additional studies of certain White Paper findings, using additional data from those banks that also participated in the White Paper studies. Key findings suggest:

  • Consumers that have "opted-in" to overdraft programs pay an average of $250 or more per year in checking account fees, and overdraft and insufficient fund (NSF) fees account for 75 percent of the total fees they pay.
  • Opted-in accounts are three times as likely to have more than ten overdrafts per year as accounts that have not opted-in. Opted-in accounts have seven times as many overdrafts that result in fees as do accounts that have not opted-in.
  • Nearly 75 percent of overdraft fees are incurred by 8 percent of those account holders that annually incur more than ten overdrafts.
  • Debit transactions are most likely to result in overdrafts and the median transaction size of a debit that results in overdraft is $24.

The Bureau’s review of overdraft programs is ongoing and additional reports are anticipated. Areas identified as needing further review included the relationship between "opting-in" and increased overdraft activity, and the treatment of sustained negative balances. Regulatory action by the Bureau is anticipated in or around February 2015 and "might include disclosures or address specific acts or practices."

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