ABA Finds Fault with CFPB Discourse On Overdraft Fees

In a letter this week to the Consumer Financial Protection Bureau (CFPB), the American Bankers Association (ABA) criticized the consumer agency for relying on outdated and insufficient data in formulating the CFPB’s new overdraft disclosure forms. The ABA wrote, “the data reported in the [CFPB-cited studies] reflect transactions conducted five to six years ago under a different set of bank practices and consumer experiences; the data also reflect the overdraft programs offered by a small number of ‘large study’ banks, whose practices may not be representative of the entire banking industry.”

Earlier this month on the back of a report that Americans spent more than $15 billion last year on overdraft fees, the CFPB released a proposal for model standard disclosure forms to provide bank customers prior to agreeing to overdraft coverage. The ABA letter pointed to recent changes in many banks regarding overdraft coverage, including the cession of reordering transactions, the prevalence of online account access, and the diversity of programs now available.

Although not classified as a loan, overdraft coverage acts much in the same way as a short term loan. If a bank customer overdraws an account, the bank will cover the overage and charge a fee of around $35. Those fees can amount to more than 17,000% APR if a customer overdraws their account by a mere $24. While the CFPB has yet to finalize overdraft disclosure forms, the ABA is urging the agency to meet with banks and develop criteria that more closely match current industry practices.