The American Bankers Association has sent a letter to the CFPB responding to the CFPB’s June 2013 white paper reporting its initial data findings on overdraft programs. When the paper was issued, we observed that regulation by the CFPB seemed likely and commented that it would require considerable thought and creativity for the CFPB to appropriately protect consumers without depriving them of valuable overdraft services or unduly impairing bank revenues. In its letter, the ABA similarly cautions the CFPB that “unnecessarily complicating the [existing regulatory framework] will only result in increased confusion and add unnecessary regulatory costs which, in turn, will limit the availability of overdraft services for those who value them most and may ultimately push more consumers out of the banking system.”

The ABA’s letter includes a discussion of the value and benefits that overdraft services provide, the ability of responsible consumers to avoid overdraft fees, and the protection provided by existing regulations. In particular, the ABA challenges the need for the CFPB to regulate payment order or require detailed disclosures about presentment and settlement.

The CFPB has indicated that the next phase of its overdraft study will involve the analysis of account and transaction-level data obtained from random consumer account samples of nine large banks subject to the CFPB’s supervisory authority. In its letter, the ABA makes several suggestions for additional data development and analysis by the CFPB. These suggestions include the following:

  • Surveying consumers who are regular users of overdraft protection to allow the CFPB to hear from actual consumers rather than consumer groups about why consumers choose and use overdraft protection services
  • Giving consideration to how caps, thresholds or other price controls on overdraft programs may affect minimum balance requirements and the restriction or even elimination of many free services, with the potential to drive some consumers from the banking system and increase costs and/or reduce services to consumers remaining in the system
  • Understanding the income characteristics and educational level of regular users of overdraft protection
  • Testing whether alerts and account monitoring tools affect overdraft behavior
  • Investigating whether differences in opt-out rates are in fact the result of differences in marketing strategies (as the CFPB speculated in the white paper)
  • Before proposing policy recommendations, publishing a final report on the CFPB’s research and inviting public comment on the CFPB’s research methodologies, hypotheses tested and not tested, statistical findings and conclusions