Compliance Blog

Jun 13, 2013
Categories: Accounts Operations

Today's Reports are Tomorrow's Regulations: Overdraft Edition

Written by Steve Van Beek

On Tuesday the CFPB issued a Study of Overdraft Programs which outlines their findings of studying the overdraft market.

The Study was supplemented by the following materials:

For compliance officers and risk managers, I'd start with the Fact Sheet and then dive into Cordray's speech and then the Study to get an idea of where the CFPB is heading next on overdrafts.


Here are a couple of items that stood out to me from Cordray's remarks:

"Our report today examined overdraft practices at some of the country’s larger financial institutions and found wide variations across them when it comes to overdraft opt-in rates and costs. At some institutions, more than 40 percent of new customers were opting in for overdraft coverage; at others, it was less than 10 percent. The gap may reflect differences in the substance of overdraft programs, or differences in customer base, or differences in marketing approaches. On this point, we are interested to dig in and learn more about the reasons why." (Emphasis added).

What is your credit union's opt-in rate? How are you marketing your overdraft programs?

"A second takeaway is that financial institutions have very different policies, procedures, and practices that can be highly complex and difficult for consumers to understand, yet greatly affect whether and how often they will incur overdraft fees...Some charge no overdraft fees on items under a certain amount (say, for example, a transaction of $5 or less); others do not charge if the total amount of the net overdraft at the end of the day is under a certain amount. At still other institutions, if you miss by as little as a penny, you may incur a hefty overdraft fee. Predicting or planning around these results can be highly complex." (Emphasis added).

Does your credit union have a de minimis exception for overdrafts?

According to the recent Pew Trusts report, 22 of the largest 36 banks had minimums before an overdraft would be charged:

Minimum for Overdraft
One change suggested in the Pew Report was to add a "reasonable and proportional" limit on overdraft fees. In other words, if a member overdraws by $5 - you'd be limited to a $5 overdraft fee. Similar to the existing restrictions on penalty fees for credit cards under 12 CFR 1026.52(b)(2).