ABA responds to CFPB prototype overdraft opt-in forms and overdraft report

by Ballard Spahr LLP
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Earlier this month, the CFPB issued another report on checking account overdraft services, “Data Point: Frequent Overdrafts,” and four one-page prototype model forms to replace the current Regulation E model form for banks to use to disclose overdraft fees and obtain a consumer’s consent to the bank’s overdraft service for ATM and one-time debit card transactions.

In response to the report and prototype forms, the American Bankers Association has sent a letter to the CFPB to offer comments on the report and prototype forms and make suggestions for additional data development and analysis that include the following:

  • Because the Data Point report looked at transactions occurring between January 2011 and June 2012, it does not account for the existence of more consumer opportunities to use alternative products, avoid overdrafts, or have an overdraft product with features selected by the consumer.  It also does not consider changes in bank practices such as redesigned overdraft programs, fee waivers for de minimis overdrafts, and daily fee caps. The ABA also notes that many banks have adopted policies to post transactions in low-to-high order or have otherwise changed their posting order.
  • A major analytical shortcoming of the report is that it only reflects data from no more than eight large banks covered by the CFPB’s supervisory authority (i.e., banks with more than $10 billion in total assets) and such banks’ practices may not be representative of the entire banking industry.
  • There has been inadequate study of frequent users of overdraft products and their reasons for using the products and understanding of the products.
  • The CFPB has left unanswered the question of where regular users of overdraft products will turn for emergency funds if they no longer have access to such products.
  • Unless the CFPB amends Regulation E and adopts one of the prototype forms as a new model disclosure, a bank could not use one of the prototype forms without foregoing the limited Regulation E safe harbor for use of a disclosure other than the model form. The CFPB’s solicitation of emailed comments on the prototypes is insufficient under the Paperwork Reduction Act and the CFPB must follow the PRA’s standard clearance process to test the effectiveness of a new opt-in disclosure.
  • The prototype forms do not clearly state that, if a customer has opted in to overdraft protection, the bank will pay an overdraft at its discretion. They also do not make clear that if a consumer has not opted in to overdraft protection for ATM and debit card transactions, those transactions will, in nearly all instances, be declined if the consumer has insufficient funds to cover them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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