The bureau is expected to release a proposed rule on overdraft fees by the end of the year as consumers report continued fee charges when they had access to cheaper alternatives, such as a credit card.
12/20/2023 1:00 P.M.
3 minute read
With a proposed rule on overdraft fee regulation expected this month, the Consumer Financial Protection Bureau has released a report on overdraft and nonsufficient fund frees using insights from recent consumer surveys.
The report, Overdraft and Nonsufficient Fund Fees, finds that many consumers are still experiencing “unexpected overdraft and nonsufficient fund fees, despite recent changes implemented by banks and credit unions that have eliminated billions of dollars in fees charged each year,” according to a news release from the CFPB.
“In a recent CFPB Making Ends Meet survey (PDF), more than a quarter of consumers responded that someone in their household was charged an overdraft fee or NSF fee within the past year, and that only 22% of households expected their most recent overdraft. Many consumers who were charged overdraft fees had access to a cheaper alternative, such as available credit on a credit card,” according to the news release.
Key findings from surveyed households and consumers in the report include:
- “Households frequently incurring overdraft and NSF fees are more likely to struggle to meet their financial obligations. Among households that frequently incurred overdraft/NSF fees, 81% reported difficulty paying a bill at least once in the past year. This drops to 25% for households that were not charged a fee.
- Many consumers do not expect overdraft fees. Among consumers in households charged an overdraft fee in the past year, 43% were surprised by their most recent account overdraft, 35% thought it was possible, and only 22% expected it. Consumers who overdraft infrequently are more likely to be surprised by a fee: 15% of consumers from households charged 1 to 3 overdraft fees expected their most recent transaction to overdraft; among households charged more than 10 overdraft fees, 56% expected their most recent overdraft.
- Most households incurring overdraft fees had available credit on a credit card: Among households charged 1-3 overdraft fees in the past year, 68% had credit available on a credit card, while 62% of households charged 3-10 overdraft fees had credit available on a credit card. In households charged more than 10 fees in the past year, 51% still had credit available on a credit card.
- Households face a substantial overlap in being charged overdraft and NSF fees: Among consumers in households charged an NSF fee in the past year, 85% were also charged an overdraft fee. Among consumers in households charged an overdraft fee in the past year, 72% were also charged an NSF fee.
- Low-income households are hit the hardest Overdraft and NSF fees: While just 10% of households with over $175,000 in income were charged an overdraft or an NSF fee in the previous year, the share is three times higher (34%) among households making less than $65,000.”
Overdraft Fee Regulation
The CFPB recently released its Fall 2023 rulemaking agenda (PDF) with updates that rules on overdraft fees are in the proposal stage.
Overdraft fee regulation was also discussed in CFPB Director Rohit Chopra’s recent hearings with Congress on the bureau’s semiannual report, ACA previously reported.
The summary for the overdraft fee proposal states, “financial institutions offer various types of overdraft services, some of which are subject to Regulation Z and some of which are not. Whether Regulation Z applies depends on whether fees imposed in connection with those services (overdraft fees) are considered finance charges. When the Federal Reserve Board first adopted Regulation Z in 1969, it created special rules for determining whether overdraft fees are considered finance charges. While the nature of overdraft services, including how accounts can be overdrawn and how financial institutions determine whether to advance funds to pay the overdrawn amount, has significantly changed since 1969, the special rules remain largely unchanged. The CFPB is considering developing proposed amendments to Regulation Z with respect to these special rules.”
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