CFPB Proposes New Disclosure Form for Overdraft Fees

The Consumer Financial Protection Bureau today released four new “prototype” overdraft disclosure forms as part of its “Know Before You Owe” campaign. The bureau plans further testing of the forms to determine whether they are more effective than the model opt-in form that banks currently use to explain the overdraft protection options available to consumers.

While the release of the forms was not accompanied by any regulatory amendments, CFPB Director Richard Cordray noted that the bureau is currently in the “pre-rule stage” of an overdraft rulemaking, “with no timing stated for when a rule might be proposed.” The bureau has been studying overdraft since February 2012.

Along with the model disclosure forms, the bureau also published a report on “frequent” overdraft users. The report noted that a low percentage (about 9 percent) of consumers are considered to be frequent overdrafters, incurring more than 10 overdraft or non-sufficient funds fees annually. 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 purpose credit card. The study also found that 30.5 percent of frequent overdrafters are opted in to overdraft protection services, a rate 2.5 times higher than opt-in rates for other consumers.

The American Bankers Association believes this opt-in rate demonstrates that frequent users understand and choose to use overdraft services to meet short-term credit needs. The report’s findings underscore the need for consumers to have access to a variety of small-dollar credit options — including overdraft — within the banking industry. For more information, contact ABA’s Virginia O’Neill.