Very early Friday morning the CFPB sent another shot across the bow regarding overdraft accounts that likely are a forerunner to upcoming rules on automated overdrafts which will cover check and ACH transactions. The CFPB has been in testing mode for a few years now and as part of that testing has been obtaining customer feedback as to the clarity of a variety of overdraft disclosures.
Director Cordray stated the bureau is not proposing any regulatory amendments at this time but is still considering new overdraft regulations. He again reiterated the CFPB is in the “pre-rule stage,” with “no timing stated for when a rule may be proposed”, but then again, the CFPB has been saying this in regard to automated overdrafts for over two years now.
The press release that announced the “Know Before You Owe” overdraft disclosures, https://www.consumerfinance.gov/about-us/newsroom/cfpb-unveils-prototypes-know-you-owe-overdraft-disclosure-designed-make-costs-and-risks-easier-understand provided four “prototype” disclosures the CFPB has been testing which it believes will both lower the costs and risks of opting in to overdraft coverage.
Attached is a listing of the existing Appendix A notice and the four prototypes:
The good news is that there is nothing you are required to do for now. You can’t use the prototype forms so don’t worry about any system changes at the present time. The model form in Regulation E (Appendix A-9) is the one you are still required to utilize so keep the ship steady for now. In general, the new forms contain some of the following provisions: more prominent overdraft fee amount, greater amount of information in regards to linked accounts and potentially lowered fees, a specific example as to how a slight overdraft can result in a $49 negative balance, how 6 overdraft fees can total $204 per day, etc. In other words, the customer will be more aware of the potential consequences of opting in.
For you reading pleasure, the CFPB provided a 50-page supporting document of its findings and conclusions: https://files.consumerfinance.gov/f/documents/201708_cfpb_data-point_frequent-overdrafters.pdf). My guess is that this document was included because the CFPB and banking advocacy groups have been at odds over whether overdrafts are a service that consumers are demanding or one that unfairly takes advantage of disadvantaged groups such as lower income, younger and older consumers. One of the conclusions of the report is that frequent over-drafters (more than 10 overdraft situations in a year) who opt into Regulation E ATM and 1-time debit overdraft coverage pay almost $450 more in annual fees than those that do not opt-in. Banks, on average, earn almost 80% of their overdraft fees from such customers.
Be ready for the other shop to drop in the form of new rules for checking and ACH overdrafts as well as new forms for the existing types of accounts covered by the Regulation E overdraft disclosures.