CFPB's next target: overdraft practices

Next on the Consumer Financial Protection Bureau’s to-do list: banks’ overdraft practices.

Overdrafts occur when you spend more than you have in your bank account. The bank will cover those overdrafts for a fee that can run from $30 to $35.

The CFPB says it sent a data request to banks today on their overdraft policies. The agency is looking into four areas:

  1. The re-ordering of transactions Consumers have complained, and filed lawsuits, over the practice by some banks to change the order of the checks and ATM transactions in a way that triggers more overdrafts. For instance, processing the largest checks or transactions first will empty a customer’s account faster — and generate more overdraft fees. The CFPB says it wants to discover how widespread this practice is and how it affects customers.
  2. Not enough information The CFPB says it will review whether consumers have enough information about overdrafts terms — or about the cheaper ways to cover a shortfall in their bank account.
  3. Misleading information Consumers now must opt-in if they want overdraft protection on debit card transactions. The opt-in rates at banks differ widely. The CFPB says some consumers reportedly are getting misleading marketing materials about opt-ins. CFPB says it wants to know whether how banks explain opting in could be affecting customers decision to do so.
  4. Why low-income and young consumers pay more overdraft fees The FDIC four years ago did an overdraft study and found that 9 percent of checking account customers pay 84 percent of the fees, the CFPB says. They tended to be the young and low-income customers.

The CFPB doesn’t just want to hear from banks. It’s also seeking consumer feedback on its “penalty fee box” that would appear on consumers’ statements after overdrawing their account.

The CFPB wants the box to make it clear to consumers just how much they pay when they overdraw their account. Check out the box and weigh in with what you think at the CFPB's website.

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