As we await the CFPB’s proposed overdraft and nonsufficient funds (NSF) fee rule, the CFPB issued another report, Overdraft and Nonsufficient Fund Fees: Insights from the Making Ends Meet Survey and Consumer Credit Panel. It appears this report was issued to bolster those imminent rulemaking efforts, similar to the consent order with Atlantic Union Bank earlier this month.

As the CFPB has continuously reported over the past two years, the industry has implemented drastic changes to overdraft and NSF fee practices, which begs the question of the need for this rulemaking. Nearly two-thirds of banks and one-fourth of credit unions have eliminated NSF fees and banks have reduced their overall reliance on overdraft/NSF fee revenue by a nearly 50% decline in overdraft and NSF fee revenues compared to pre-pandemic levels.

The new report purports to provide new insights about consumers’ experiences with overdraft and NSF fees. Many consumers report being surprised by their most recent overdraft while other consumers use overdrafts often and intentionally. The report leverages data from the 2023 Making Ends Meet (MEM) survey and the CFPB’s Consumer Credit Panel. The survey (for which participants were paid a series of monetary incentives by the CFPB), to which 3,212 consumers provided completed responses, asked consumers about their experiences with overdraft and NSF fees in the past year and financial pressures they face. The Consumer Credit Panel allows the CFPB to view the credit and debt profiles of these same consumers, including their credit scores, amount of credit available, and delinquent debt, which one of the credit bureaus compiled in aggregate for the survey group.

The overdraft questions in the 2023 MEM survey were:

1. In the past 12 months, how many overdraft fees have you or others in your household been charged? An overdraft fee occurs when your account balance is less than a payment, but your bank covers the transaction and charges you a fee.
   1. Answer options: None in the past 12 months; 1-3 fees; 4-10 fees; more than 10 fees
2. [If at least one overdraft fee] The last time this happened, were you surprised or did you expect to overdraft your account when you made the transaction?
   1. Answer options: Surprised; I thought it was possible; Expected to overdraft

The NSF questions in the 2023 MEM survey were:

3. In the past 12 months, how many insufficient funds fees have you or others in your household been charged? An insufficient funds fee occurs when your account balance is less than a payment, and your bank denies the payment and charges you a fee.
   1. Answer options: None in the past 12 months; 1-3 fees; more than 3 fees
4. [If at least one NSF fee] The last time this happened, were you surprised or did you expect to be charged a fee when you made the payment?
   1. Answer options: Surprised; I thought it was possible; Expected to be charged a fee

Key findings in the report based on the responses from surveyed consumers include:

• In the past year, 76.4% of households were not charged an overdraft fee, 14.8% of households were charged 1-3 overdraft fees, 5.5% were charged 4-10 overdraft fees and 3.2% were charged more than 10 overdraft fees.
• Among consumers in households charged an overdraft fee in the past year, 43% were surprised by their most recent account overdraft, 35% thought it was possible, and only 22% expected it. Consumers who overdraft infrequently are more likely to be surprised by a fee: 15% of consumers from households charged 1-3 overdraft fees expected their most recent transaction to overdraft; among households charged more than 10 overdraft fees, 56% expected their most recent overdraft.
• Among households charged 1-3 overdraft fees in the past year, 68% had credit available on a credit card, while 62% of households charged 3-10 overdraft fees had credit available on a credit card. In households charged more than 10 fees in the past year, 51% still had credit available on a credit card.
• In the past year 80% of households were not charged a NSF fee, 14.1% were charged 1-3 NSF fees, and 5.9% were charged more than 3 NSF fees.
• Among consumers in households charged an NSF fee in the past year, 85% were also charged an overdraft fee. Among consumers in households charged an overdraft fee in the past year, 72% were also charged an NSF fee.
• 10% of households with over $175,000 in income were charged an overdraft or an NSF fee in the previous year compared to 34% among households making less than $65,000.
• 10% of consumers in the no overdraft/NSF fee group have a subprime credit score, 25% of consumers in the 1-3 overdraft/NSF fee group and 41% of consumers in the 4+ overdraft/NSF fee group. The average credit score differs by over 100 points for those in the no overdraft/NSF fee group (744) and those in the frequent overdraft/NSF fee group (637).
• In the past year, 25.8% of consumers in the 4+ overdraft/NSF fee group report taking out a payday, auto title, or pawnshop loan as compared to 9.2% in the 1-3 overdraft/NSF fee group and 6.5% in the no overdraft/NSF fee group.

The Consumer Bankers Association issued a press release in response to the new report:

The CFPB’s press team cut important corners today, because they rely on a study that is limited to consumers with credit histories. That means that as many as 10 percent – or 26 million – of Americans who are “credit invisible” are excluded from its analysis. In doing so, the Bureau continues to overlook consumers on the margins that may benefit most from overdraft services due to their not having access to other well-regulated credit products like credit cards.

It’s no surprise then that the Bureau confuses correlation and causation with headlines flagging that consumers that use overdraft frequently struggle to pay their bills. Overdraft services exist for that very consumer. These services are an essential safety net for consumers who may experience short-term liquidity gaps and income or expense shocks. Unlike the cherry-picked sample from the CFPB’s press release, the broader population that relies on overdraft services frequently lacks access to traditional credit products like credit cards and, absent overdraft, may need to turn to less-regulated sectors for credit alternatives like payday loans, pawn shops, or auto title loans.

See the CFPB’s Making Ends Meet in 2023: Insights form the Making Ends Meet survey to learn more about the basis for the CFPB’s findings. The CFPB found in the MEM survey that the financial health of consumers declined in 2023 with many consumers showing signs of financial distress.

Since the survey did not require any supporting documentation for the responses, we cannot evaluate how closely the responses are reflective of consumers’ actual experiences or what the answers actually mean. Additionally, the CFPB’s leading question (“were you surprised or did you expect to overdraft your account when you made the transaction?”) combined with the placement of “surprised” as the first answer option and the fact that people tend not to answer questions in a way that reflects unfavorably on their behavior (an important fact that the CFPB blithely neglects to mention in its report)may well have led many consumers to answer surprised. (In prior guidance, the CFPB has labeled overdrafts as surprise fees). We thought it interesting that the CFPB did not ask consumers why they were actually surprised to discover the root cause of the issue. Possible answers might be: I didn’t know that my bank charges overdraft fees; I knew about overdraft fees but I thought my bank would just cover the transaction without charge; I didn’t check my balance but I thought I had enough money in my account to cover the transaction; I checked my balance and thought I had enough money in my account to cover the transaction, etc.

A reasonable consumer should expect an overdraft fee if an item is paid when their account does not have sufficient funds to cover the transaction. Overdraft practices are clearly disclosed to consumers in the Regulation E mandated disclosure titled “What You Need to Know About Overdraft and Overdraft Fees.” A consumer’s checking account balance, along with the transactions for which the checking account is used, should not be a surprise or mystery to the consumer; the consumer wrote the checks, dipped or tapped the card, and authorized the payments. Financial institutions make it incredibly easy for consumers to track balances through digital banking, phone banking, and balance and transaction alerts that are particularly useful for consumers who do not maintain a check register (for the younger generation readers, a check register was a lined book sent with checks to write down all your account transactions). Consumers need to take ownership of their financial health. The CFPB needs to stop attacking lawful banking fees that are clearly disclosed to consumers.

We will continue to keep watch for the CFPB’s overdraft and NSF fee rulemaking—a “present” that may or may not arrive in time for Christmas.

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