The CFPB released a report (Data Point: Checking Account Overdraft) raising concerns about the impact of opting into overdraft services for debit card and ATM transactions. The study found that the majority of debit card overdraft fees are incurred on transactions of $24 or less and that the majority of overdrafts are repaid within three days. CFPB’s press release expressed it in what it called “lending terms,” declaring, “if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate (APR).”
The study raised concerns at the CFPB that a small number of consumers are paying large amounts for overdraft. The report finds that among the banks in the study, overdraft and NSF fees represent more than half of the fee income on consumer checking accounts. The study found that about 8 percent of accounts incur the vast majority of overdraft fees.
Last year, a CFPB report raised concerns at the CFPB about whether overdraft costs can be anticipated and avoided by consumers. The report showed big differences across financial institutions when it comes to overdraft coverage on debit card transactions and ATM withdrawals, causing the CFPB to question how banks sell the overdraft account feature. The report also found that consumers who opt in end up with more costs and involuntary account closures.
“Overdraft programs offer consumers a valuable tool to access short term credit for a reasonable cost," said Chris Williston, IBAT President and CEO. “IBAT has long advocated clear and concise disclosures to ensure bank customers are aware of the benefits and costs of these programs . . . and then allow them to make an informed choice. We believe that community banks go out of their way to make sure this is the case.”
The CFPB plans further studies on how overdraft works and how it is affecting consumers. The Bureau is also weighing what consumer protections are necessary for overdraft and related services.