Consumers Should Continue to be Protected From Paying Costly Overdraft Fees
Under the leadership of its newest director, Kathy Kraninger, the Consumer Financial Protection Bureau (CFPB) has been very busy these days proposing new regulations and reviewing rules already on the books. Unfortunately, much of what has resulted from these actions would inadequately protect consumers from abusive financial products and services.
Along with reconsidering the payday lending rule that was passed in 2017 and releasing a proposed rule to regulate the debt collection industry, the Bureau is reviewing a rule that protects consumers from incurring overdraft fees related to debit card and ATM transactions.
Known as the 2009 “opt-in” rule, it prohibits financial institutions from automatically enrolling a consumer into an overdraft protection program. These programs allow a transaction, such as a purchase with a debit card, to go through even if the card does not have enough money for the purchase. The transaction is then processed, but the consumer receives an “overdraft fee” as a fine for overdrawing the account. Under the 2009 “opt-in” rule, the consumer would have to affirmatively consent to participate. In other words, they would have to “opt-in” to the program. If the consumer consents, they can make the purchase and are charged the additional fee. Without consent, the transaction is cancelled, but the consumer avoids paying the added fees.
Along with increasing consumer choice, this rule helps people build wealth and save for a rainy day. Consider that an overdraft fee can be as large if not larger than the transaction amount that triggered the fee. In fact, Bureau research found that the median transaction amount leading to an overdraft fee for debit transactions was $24 while the median fee amount for all transactions (not just debit or ATM) was $34 at most of the large banking institutions in the country. With this rule, consumers can avoid paying high cost fees, which they may not even be aware they are being charged without an explicit opt-in.
In response to these proposed changes, Prosperity Now submitted a comment letter earlier this month strongly urging the Bureau to preserve the rule and consider ways to make it stronger, much like we did with the payday lending comment letter back in May.
As our overdraft comment letter points out, this regulation is particularly beneficial for the low-income families who are disproportionately charged these fees and the households of color who are more likely to be unbanked and underbanked than their White counterparts. Households of color are also twice as likely as White households to lack the resources to deal with a long-term financial emergency, making the CFPB’s reconsideration of the 2009 “opt-in” even more alarming. To support the working families that we care so much about, this rule should not be watered down. If anything, the Bureau should find ways to make it even stronger.
For all the issues that are in play right now – whether it’s payday lending, debt collection, overdraft fees or anything else – it will continue to be important to hold the Bureau accountable by making sure they enact strong rules that protect consumers from harm. The next big action will be the debt collection comment letter that we plan on circulating to the network for organizational sign-ons in August. Please stay tuned!