ABA to Congress: Don’t Restrict Overdraft Services Consumers Value

In a statement for the record of a House Financial Services Committee hearing tomorrow, the American Bankers Association urged lawmakers to preserve consumer choice regarding financial products and services, including overdraft protection. ABA noted that overdraft protection is an important source of liquidity for many Americans, and that nine in 10 American consumers find the overdraft protection offered by their bank to be valuable, while more than half would oppose a government proposal to prevent banks from offering the service.

The association also warned that taking action to restrict overdraft could lead financial institutions to stop offering the services altogether, “which would result in significantly more returned checks and declined transactions. This, in turn, will mean that consumers will pay returned item fees charged by the payee or merchant and late fees, have lower credit ratings, or be required to pay using cash, a cashier’s check, or a money order.”

ABA called for a reduction of the barriers that discourage banks from offering affordable small-dollar credit, and encouraged lawmakers to direct the CFPB to study why consumers use and value access to overdraft protection so that the benefits, costs and alternatives can be fully understood.

“Congress’ inquiry into overdraft services should not be based on selective anecdotes, unsupported assumptions about consumer behavior, or Congress substituting its own view of what is “best” for consumers, but rather on an evidence-based understanding of regular users of overdraft protection—why they use the product, what they understand about their ability to opt in and out, and what their preferences are relative to available alternatives,” ABA said.

In related news, the CFPB in a new blog post today said that it will “continue to explore the range of our tools” to address the issue of overdraft fees and “other financial practices that penalize products and erode trust.” The blog post—which follows other recent criticism from regulators of banks’ fully legal and compliant overdraft programs in recent weeks—primarily cited complaints received by consumers regarding overdraft fees and flagged several themes including the high costs and frequency of overdraft fees, and excessive overdraft fees leading to account closures.