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The Consumer Financial Protection Bureau is conducting an inquiry into financial institutions' overdraft protection practices and seeking comment on a draft "penalty fee" box that could be included on consumers' checking account statements to explain overdraft fees and how to minimize them.

CFPB Director Richard Cordray, announcing the inquiry from a press conference in New York City, said the bureau is focusing on industry practices that drive up consumers' costs, mislead consumers and negatively affect low-income and young consumers.

Other regulators, including NCUA, have addressed overdraft practices in recent years through regulation and guidance, and Cordray acknowledged that today's technology offers consumers more opportunities to access their accounts and cause overdrafts. "But overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it," he said. "We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

The CFPB, in its inquiry, is focusing on:

• transaction re-ordering that increases consumer costs;
• missing or confusing information;
• misleading marketing materials; and
• disproportionate impact on low-income and young consumers.

The bureau is revisiting a 2008 FDIC study that showed 9 percent of checking account customers bear about 84 percent of overdraft fees and that 46.4 percent of young adult accountholders incurred overdraft fees (about a third of those accountholders had more than 10 overdrafts in one year).

The CFPB released its draft penalty fee boxonline and published a notice and request for information on overdraft programs. This box would provide total overdraft and nonsufficient fund fees paid during the statement cycle and compare that with the aggregate overdraft amounts that triggered the fees.

The request for information poses 12 questions about issues such as alternatives to overdraft protection programs, consumer alerts and information provided regarding balances and overdraft triggers, impact of changes to relevant regulations, the economics of overdraft program and impact of changes in financial institutions' operating policies.

The bureau will take comments for 60 days following the notice's publication in the Federal Register. It is also polling consumers on whether they have opted in to overdraft protection programs.

NAFCU is preparing a Regulatory Alert for members that explains the request and includes the 12 questions. Meanwhile, it will discuss this inquiry and the draft penalty fee box directly with CFPB representatives.