Community Bankers of Iowa Monthly Banker Update August 2013 | Page 14
Written By: John M. Floyd, Chairman & CEO of John M. Floyd & Associates (JMFA)
CFPB Releases Initial Overdraft Study Results
Full Disclosure and Transparency Remain Standard Requirements for Overdraft Programs
After months of speculation regarding regulatory oversight of consumer financial products, the Consumer Financial Protection Bureau (CFPB) released the initial results of its 2012 inquiry into overdraft programs on June 13, 2013. Based on information received from banks in its initial study survey, along with feedback from the public, the CFPB announced that it will continue to study the issue before addressing any policy changes. And while CFPB Director Richard Cordray affirmed that overdrafts can provide consumers with needed access to funds, he expressed concern about program policies and procedures that can be “highly complex and difficult for consumers to understand, yet greatly affect whether and how often an account holder will incur overdraft fees.” For instance, according to the study, there is a significant difference in the procedures used by banks to determine when a transaction might overdraw a customer’s account and whether or not the customer would be charged an overdraft fee. These include: • when a bank provides funds availability on deposits; • how a bank treats holds on funds in connection with debit card transaction authorizations; • what transaction posting order is used by a bank; • how overdraft limits are set; • whether a bank offers waivers or delays in assessing overdraft fees to accounts for de minimis transactions or short negative balance periods; • how a bank promotes enrollment in automatic transfers from linked deposit accounts or credit lines to avoid overdrafts; and • how a bank screens new account applicants. According to Cordray, “What is marketed as overdraft protection can, in some cases, put consumers in greater risk of harm. Consumers need to be able to control their costs and expenses, and they deserve clarity on these issues.” While nothing in the report implies that banks should be precluded from offering overdraft coverage for account holders, the CFPB plans further analysis of its findings regarding the number of consumers who are incurring heavy overdraft fees or account closures – along with the wide variations in practices and procedures used by financial institutions – to determine whether they are harming consumers. Compliant financial products provide a valuable consumer resource. According to the Federal Deposit Insurance Corporation (FDIC), nine out of 10 Americans have a checking account, making it the most widely used financial services product in the United States. These accounts provide a secure way for consumers to collect earnings and make payments, and for many, they serve as the entry point to the financial mainstream. And while some may view the frequent tendency to overdraw a checking account as a lack of financial sophistication or even lack of judgment, it is important to remember that many Americans struggle financially and rely on liquidity from credit cards to accommodate unexpected expenses – or merely to make it until the next pay day. According to a survey released by Bankrate.com, nearly threequarters of Americans are living paycheck-to-paycheck, with little to no emergency savings. Fewer than one in four surveyed had enough of a cushion to cover unexpected medical expenses or other emergency situations. A fully disclosed overdraft program that clearly defines the rules by which an account holder may acc ????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????5????????????????????????????????????????????e??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????A?????????????????????????????????????????????????%???????e????????????????????????????????????????????????????????????????????????????????????????????????A???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????
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