Banking Trades Urge Further Study of Overdraft Use

A group of financial trade associations led by ABA today urged the CFPB to conduct a study of consumers’ preferences on overdraft and release the findings for public comment before undertaking any additional actions related to overdraft practices. The groups’ letter came after the bureau in December released two research reports on overdraft and signaled that it was “considering additional policy guidance outlining unlawful practices.” The groups highlighted findings from a recent Morning Consult survey that nine in 10 U.S. adults find their bank’s overdraft protection valuable, and that three in four were happy when their payment was covered when overdraft protection was used.

“Restrictions on overdraft may lead financial institutions to stop offering these services to their customers, which would result in significantly more returned checks and declined transactions,” the groups cautioned. “This may lead to unnecessary credit rating harm; returned item fees charged by the institution or by the merchant; fees from landlords and others; or requirements to pay using alternative methods such as money order.” They also cited a survey by research firm Curinos, which found that 62% of consumers would reconsider their support for new regulation of overdraft if it limited access to the service.

The groups recommended that the CFPB study frequent overdraft users in particular to ensure they fully understand how and why these consumers use overdraft and gauge their level of understanding about overdraft offerings. “Absent compelling evidence of knowledge gaps or that consumers are using the product irrationally—i.e., evidence that regular users of overdraft protection do not understand the product and its costs relative to available alternatives—people should be assumed to be the best judges of what is in their best interests and should remain free to choose.”