CFPB Releases Model Overdraft Disclosures

CFPB Releases Model Overdraft Disclosures
August 4, 2017 Marketing GrafWebCUSO

The CFPB on Friday released four overdraft disclosure prototypes designed to make it easier for consumers weighing whether to take out overdraft protection.

The one-page form is designed to improve the model form already being used by credit unions and banks.

“When every penny counts, people need to understand how overdraft works, and whether they want to take the risk of paying overdraft fees on debit card transactions and ATM withdrawals,” CFPB Director Richard Cordray told journalists in a conference call.

The agency is seeking public comment on the model disclosures. If adopted, the CFPB intends to post the model on the agency’s website. Any bank or credit union would be able to use the model disclosure by simply filling in their institution’s information on the form.

The form includes simple descriptions of overdraft programs so consumers can evaluate the costs and benefits of enrolling.

In 2010, federal regulations began requiring financial institutions to gain a consumer’s consent before charging overdraft fees on debit card purchases and ATM withdrawals. Customers who do not opt in to overdraft will often have their purchases or withdrawals rejected.

Cordray said the agency is still in the “pre-rule” stage in its examination of overdraft policies, with no set timetable for when the agency may release proposed regulations.

At the same time, the agency released a new report showing that customers of the largest banks who have opted in to debit card and ATM overdraft typically pay $450 more a year than those who do not.

Frequent overdrafters typically carry a low daily balance in their accounts and have little or no credit scores.

The report covered the largest banks and did not include credit unions. 

“Despite recent regulatory and industry changes, consumers with low account balances and little margin for error continue to pay significant overdraft fees,” Cordray said.