Community Bankers of Iowa Monthly Banker Update September 2013 | Page 10

Payments Exchange: Observing Overdrafts
Written By: Viveca Y. Ware, Executive Vice President of Regulatory Policy for ICBA

CFPB Study Highlights Differences in How Banks Administer Overdraft Protection Programs
The Consumer Financial Protection Bureau’s highly anticipated June 2012 report on overdraft programs confirms what ICBA has been explaining for over a year: While there is universal value in offering consumers such programs, how those programs are administered varies greatly from institution to institution. And while the CFPB’s findings noted “wide variations across institutions” in terms of bank practices and procedures and their associated impact on program fees and account closures, the report ultimately recommends further analysis to help determine whether further regulatory action is warranted. “Nothing in this report implies that banks and credit unions should be precluded from offering overdraft coverage,” the CFPB concludes. “Additionally, our study notes progress in some areas in recent years in protecting consumers from harm.” The report summarizes information obtained from the CFPB’s February 2012 Request for Information and from a detailed CFPB study of the overdraft programs operated by a small set of large banks (those with assets greater than $10 billion) supervised by the bureau. ICBA’s Overdraft Payment Services Study of community banks’ overdraft programs and consumers’ checking account practices and preferences, released in June 2012, was also cited as a source of bank and consumer information that the bureau considered.
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Key Findings Noteworthy research findings in the CFPB report include: • The median per-item overdraft fee in 2012 at smaller banks was $30 compared with $34 at the largest banks. • In 2011, 27 percent of accounts at the CFPB studied banks experienced at least one overdraft or NSF transaction, and the average related total fees accountholders paid to those institutions was $225 (and varied by as much as $201). • The banks the CFPB studied involuntarily closed 6 percent of consumer checking accounts that were open or opened during 2011. The bank with the highest involuntary accountclosure rate closed 14 times more of its accounts compared with the bank with the lowest involuntary account closure rate. • After Regulation E was amended to require banks to obtain permission from consumers for overdraft services related to debit card transactions, accountholders who chose overdraft protection experienced higher rates of involuntary account closures than those who had not chosen such protection (8.5 percent versus 5.5 percent, respectively). • Consumers opening new accounts during 2011 accepted overdraft coverage more often than those who already had existing accounts, and the rates of consumers choosing overdraft coverage varied dramatically from bank to ban ????????????????????????????????????????????????
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