ABA to CFPB: Process for Overdraft Study, Forms Falls Short

The Consumer Financial Protection Bureau must base its studies of overdrafts on current, rigorous data and adopt any new disclosures through an open and transparent process, the American Bankers Association told the bureau today in a comment letter. Moreover, the bureau must explore why frequent users continue to use overdrafts and how their needs for short-term liquidity would be affected by CFPB regulatory activity.

“People of all walks of life rely upon overdraft and other short-term credit products to meet small dollar account shortfalls,” said ABA. “Absent compelling evidence of knowledge gaps or that consumers tend to use the product irrationally — neither of which has been demonstrated during the bureau’s five-year study of overdraft — ABA believes that people should be assumed to be the best judges of what is in their best interests and should remain free to choose.”

The bureau’s recent report on customers who frequently overdraw their accounts is based on an outdated sample of data from only a few banks that do not represent the entire industry — particularly community banks and credit unions. The report relies on data provided between January 2011 and June 2012 — before the recent growth in mobile banking and other technologies that help bank customers avoid overdrafts. Moreover, the outdated report neglects key changes since that time in how banks handle and process overdrafts, ABA added.

As for the prototype disclosures also issued by the bureau, ABA noted particular instances in which they are less clear than the existing model form and argued that the existing disclosure “is providing information necessary for bank customers to make informed decisions.” ABA also said that the bureau must use notice-and-comment rulemaking to adopt any new disclosure form for overdrafts. For more information, contact ABA’s Virginia O’Neill.