CFPB Report June 14, 2013

CFPB Releases Initial Findings on Overdraft and Non-sufficient Funds

On Tuesday, June 11, 2013, the CFPB released a report entitled “CFPB Study of Overdraft programs – A white paper of initial data findings.”  As referenced in the white paper, the CFPB intends to refine its inquiry in to overdraft services based on the findings in this first report. A follow up report is expected in late 2013/early 2014 and we expect the agency to consider regulatory action at that time. 

“Today’s study represents our first effort to ground discussion around [overdraft] issues in the actual facts and data of the marketplace,” Director Cordray said in prepared remarks. "We are a data-driven agency, and we will continue to examine this subject carefully before taking action through a transparent policy process." 

In the current report, the CFPB does not single out any explicit course of action and has observed overdrafts can provide consumers with needed access to funds. According to the CFPB, nothing in the report should imply that financial institutions should be precluded from offering overdraft services. However, the agency has stated current “practices and procedures merit further analysis to determine whether they are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent.” 

The agency identifies significant “concerns” we believe are precursors to possible future regulation, including:

  • Overdraft (OD) fees represent a sizeable portion of revenue generated by consumer checking accounts, and a small but significant segment of consumers at the banks incur a large number of overdraft and non-sufficient fund (NSF) fees.
  • The cost per incidence of OD/NSF remains a theme throughout the report and may signal further inquiry on reasonable or proportional costs.
  • Overly complex account posting regimes lead to customer confusion over the assessment of OD/NSF. We believe posting order remains a critical point of contention for the agency and believe more uniform standards for posting and possible OD/NSF frequency limits will be pursued.
  • The report seems to tie the frequency of involuntary account closures to overdraft practices, possibly suggesting that consumers may be harmed by opting in, where doing so increases the risk of account closure and future difficulty obtaining checking accounts at other institutions.
  • Consumer experience (frequency of opt in, proportion of heavy overdrafters, involuntary account closure rates, etc.) varies widely at different institutions, and the report suggests the possibility of these difference being due to varying practices and policies at institutions, which may not be fully understood by consumers. As the report concludes, “All of this raises questions about the degree to which even the most sophisticated consumer could readily anticipate and manage the cost of engaging in a series of transactions at one institution or compare the cost of overdrafting at different institutions.”

CFPB will now undertake a more rigorous study of account-level data to determine the consumer experience and examine how these policies and practices affect risk and cost to consumers. A CBA report summary may be found here.

CFPB Announces Mortgage Rule Implementation Webpage

The CFPB announced a new Regulatory Implementation webpage on Thursday, June 13, 2013. The page consolidates the 2013 mortgage rules and related implementation materials, including: mortgage rules at a glance; small entity compliance guides; videos; quick reference charts; 2013 rural or underserved counties list; and other helpful materials. In an email announcing the webpage the CFPB said, “Our goal with this page is to provide access to our mortgage-related implementation resources though a single webpage that makes the rule content more accessible for a broad array of industry constituents, especially smaller businesses with limited legal and compliance staff.”