Overdraft Report Raises Consumer Concerns

The report focused on large bank practices and didn’t directly study credit union practices.

August 19, 2013

The CFPB released a report in June on the impact of overdraft practices on consumers.

The report focused on large bank practices and didn’t directly study credit union practices. Nevertheless, the report includes information credit unions and others voluntarily submitted in response to the CFPB’s request for information preceding the report.

The report found that:

Consumers who opt-in to overdraft coverage for ATM and debit card transactions ended up with more costs. Previous “heavy overdrafters” who declined to opt-in to overdraft coverage for ATM and one-time debit card transactions in 2010 had lower overdraft and nonsufficient funds fees by not choosing overdraft coverage.

Consumers who opt-in to overdraft coverage are more likely to have their accounts involuntarily closed. Overdrafts are a significant contributor to involuntary account closures at many institutions.

Complex transaction posting practices make it difficult for consumers to anticipate overdraft costs. The order in which institutions post transactions to an account can influence the number of overdraft fees (e.g., larger transactions processed first can mean multiple overdraft fees on a single day).

Overdraft coverage limits depend on multiple factors and can vary greatly between institutions. Different overdraft policies, procedures, and practices lead to very different outcomes for consumers at different financial institutions.

Although the report raises concerns about the ability of consumers to anticipate and avoid overdraft costs, the CFPB isn’t expected to issue a rule to regulate overdraft practices this year.

CUNA will monitor the situation as the agency continues to study financial institution overdraft protection plans.