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Financial Services Law Insights and Observations

CFPB examines consumer overdraft experiences

Federal Issues CFPB Consumer Finance Overdrafts NSF Fees

Federal Issues

On May 18, the CFPB published a data spotlight reporting on consumers’ experiences with overdraft programs. The Bureau conducted interviews and focus groups with low- and moderate-income consumers last summer where participants were asked about their use of deposit accounts and debit cards, their understanding of overdraft fees and non-sufficient funds (NSF) fees, and their perceptions of ways to avoid these fees. The Bureau found that, among other things, many consumers were not aware of their financial institution’s overdraft policies and thought protection automatically came with their account, while others were unaware that they could end overdraft protection. Others expressed concerns about fees, payment timing, and notifications, with some consumers saying that the typical $35 overdraft fee was “excessive” and “not necessarily proportional to the covered transaction.” Additional concerns flagged by consumers included: (i) financial hardships and fee waivers due to cascading overdraft fees; (ii) negative balances due to delayed merchant holds or delayed deposits; (iii) account closures because of overdraft fees, leading to difficulties when opening new accounts for some consumers; and (iv) limited awareness of various account options, including deposit accounts without overdraft fees and second-chance accounts. The Bureau reported that while some financial institutions have reduced or eliminated overdraft and NSF fees, implementation is “uneven and impermanent,” so consumers may not yet have benefited from the changes.