WASHINGTON– A coalition of consumer groups has sent a letter to the CFPB urging it not to weaken the Federal Reserve’s 2009 overdraft “opt-in” rule.
“More broadly, comprehensive reform of unfair and abusive overdraft practices is badly needed. … Financial institutions combine a number of unfair and abusive practices in order to impose high, repeat overdraft fees on their customers,” the letter reads.
Sending the letter to the CFPB were the Center for Responsible Lending (CRL), National Consumer Law Center (on behalf of its low-income clients), Americans for Financial Reform Education Fund, National Association for the Advancement of Colored People (NAACP), National Coalition for Asian Pacific American Community Development (National CAPACD), and National Fair Housing Alliance (NFHA).
Reform ‘Badly Needed’
The letter supports upholding the rule, which went into effect in 2010 and which states financial institutions must not assess a fee or charge on a consumer's account for paying an ATM or one-time debit card overdraft transaction, unless the institution, among other things, obtains the consumer's affirmative consent, or opt-in, to the institution's payment of overdrafts for these transactions.
The CFPB became responsible for this rule in 2011 and is now reviewing it under the Regulatory Flexibility Act (RFA).
“The considerations prescribed by the RFA strongly support strengthening protections against overdraft fees on debit card and ATM transactions. More broadly, comprehensive reform of unfair and abusive overdraft practices is badly needed,” the letter reads. “Financial institutions combine a number of unfair and abusive practices in order to impose high, repeat overdraft fees on their customers. These fees create hardships from which many consumers do not recover. Comprehensive, sound regulatory policy around overdraft fees—rules that prohibit unfair and abusive practices in overdraft programs—can restore health to the market, make space for far better products, and save families from being washed away by the very institutions that hold themselves out as vehicles for those families’ financial security.”
In a statement accompanying release of the letter, the groups said the CFPB has been studying overdraft fees since 2012, with the results underscoring “that overdraft programs use unfair and abusive practices to exploit financially vulnerable customers. Research has also shown that bank overdraft programs disproportionately harm lower income communities and communities of color. Bank overdraft practices drive many low-income people out of the banking system altogether.”
The joint letter further urges CFPB Director Kathy Kraninger to have the agency take a comprehensive approach to further address overdraft fee abuses.
“We urge CFPB to subject overdrafts on all transactions to credit protections, including permitting repayment in affordable installments,” the letter states. “This is particularly warranted for overdraft fees that exceed those that may be occasional and inadvertent—fees exceeding more than one per month and six per year.”
In the same statement accompanying release of the letter, the organizations cited a report that found banks with more than $1 billion in assets had collected more than $11.45 billion in overdraft and non-sufficient funds (NSF) in 2017. The groups also noted the CFPB released a study that found that nearly 80% of bank overdraft and NSF fees are borne by only 8% of account holders, who incur ten or more fees per year, with many of those customers paying far more.