In a blog post published last week, the CFPB reported that since the beginning of 2022, it has been collecting data from supervised institutions on their overdraft and non-sufficient fund (NSF) practices and intends to use the information to identify institutions for further examination and review.  The CFPB also plans to provide feedback to each institution and share the information with other regulators but will not make the information publicly available. The CFPB has supervisory authority as to banks and credit unions with more than $10 billion in assets.  

To obtain the data, the CFPB has sent a questionnaire to more than 20 institutions. (The questionnaire is linked to the blog post).  The questionnaire seeks information for the period April 1, 2021 through March 31, 2022 regarding accounts that were open as of March 31, 2022 and regarding accounts that were closed as of that date.  In February 2022, the CFPB published a table showing the overdraft/NSF practices of the 20 banks with the most overdraft/NSF revenue through the first three quarters of 2021.  The information in the table was based on publicly available information.

The data sought by the CFPB includes:

• Number of accounts opted into and not opted into Regulation E overdraft services as of March 31, 2022.
• The amount of overdraft coverage provided across accounts opted into and not opted into Regulation E overdraft services as of March 31, 2022.  (For purposes of the questionnaire, “overdraft coverage” means “the dollar amount of an individual transaction for which the consumer lacked sufficient account balance and which the institution paid, casing the consumer’s account balance to become negative.”  By way of example, if a $100 transaction made by a consumer with a $50 account balance was paid by the institution and resulted in a negative $50 account balance, the amount of overdraft coverage provided would be $50.)
• Total overdraft and NSF fees and per account average of overdraft and NSF fees assessed on accounts opted into and accounts not opted into Regulation E overdraft services.
• Percentage of open and closed accounts with more than 6 and more than 12 overdraft and/or NSF fees per year (for opted in accounts and for accounts not opted in).
• Share of active checking accounts that are opted into overdraft programs for ATM and one-time debit transactions

The questionnaire also asks about the per transaction amount of overdraft and NSF fees, grace periods for making a deposit to avoid overdraft or NSF fees, transaction and account balance thresholds for assessing overdraft fees, limits on the number of overdraft or NSF fees charged per day, balance used (available or ledger balance) for assessing overdraft or NSF fees, and whether overdraft or NSF fees are charged for debit card transactions that authorize against a positive balance but settle against a negative balance.

The CFPB comments that it is “encouraged” that some banks are changing their overdraft and NSF programs and plans to evaluate how these changes are being implemented.  It also comments “[m]any banks have yet to improve their practices.”

In addition to discussing “rent-a-bank schemes” in her keynote address last week at the Consumer Federation of America’s 2022 Consumer Assembly, CFPB Deputy Director Zixta Martinez discussed overdraft practices.  Observing that “[o]verdraft practices can seem more like a maze than a service,” she commented:

As many consumers have learned, to correctly predict the occurrence of overdraft fees, customers must master the intricacies of an arcane payments system.

Banks penalize their customers based on intricate details, outside consumers’ control, such as the difference between authorization and settlement, the amount of time a credit may take to show up in the account, the use of one kind of balance over another for fee calculation purposes, or the order of transaction processing across different types of credit and debits. Even a savvy customer trying to shop for the best checking account would have a hard time parsing it all because she’d have to know the unknowable.

She characterized overdraft fees as fees that “challenge [consumers’] ability to remain banked.”  According to Ms. Martinez, “Because overdraft fees heavily impact many consumers who are already struggling to stay afloat, the fees can drive them into involuntary account closures—and deeper into debt.”  She stated that “[t]he market will not solve this failure [arising from anti-competitive behavior]on its own, and citing the CFPB’s commitment “to returning vigorous competition to this market,” stated that the CFPB “continue[s] to evaluate using the range of our tools to ensure the checking account market works well for consumers.”

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