CFPB: Bank-Led Overdraft Innovation Driving Consumer Savings

The Consumer Financial Protection Bureau (CFPB) this week released a new report underscoring the significant savings bank-led overdraft innovation has delivered consumers.

What They’re Saying: Driven by a desire to meet evolving consumer demand, a growing share of America’s leading banks have unveiled innovative overdraft solutions designed to expand choice, strengthen transparency and lower costs. The CFPB’s latest report highlighted how these changes are improving lives of consumers, noting:

“Overdraft/NSF revenue for the fourth quarter of 2022 alone was approximately $1.5 billion lower than in the fourth quarter of 2019 – a decrease of 48% compared to before the pandemic, suggesting an annual reduction of over $5.5 billion going forward. This decrease suggests average annual savings of more than $150 per household that incurs overdraft or NSF fees; many households that have typically paid a high number of overdraft or NSF fees annually have saved much more.”

Recent research from the Brookings Institute – which found the monetary impact of bank-led overdraft innovation has led to roughly $5 billion a year in savings for hardworking families – supports the CFPB’s analysis, as does an August 2022 study from the global intelligence firm Curinos, which found:

• At least 29 financial institutions with more than $10 billion in assets have announced significant reforms to their overdraft policies.
• Based on these voluntary changes, overdraft fees are expected to fall by 68% between 2008 and the end of 2023, resulting in $167 in annual savings per U.S. adult by year end 2023.
• If current trends continue, consumers could save more than $28 billion in the five-year period between 2021 to 2025.

Why It Matters: Banks are working to lower costs while simultaneously protecting access to overdraft because there is a clear need. According to a recent survey, more than half of Americans are unable to cover an unexpected $1,000 bill with savings, alone. Overdraft remains one of the few emergency safety nets available to consumers within the well-regulated, well-supervised banking system.

Looking Back: In Washington, leading regulators, legislators, and academics from across the political spectrum have recognized the positive impact of these changes – especially for consumers already contending with ongoing economic headwinds:

• CFPB Director Rohit Chopra at CBA LIVE in March said: “There has been very, very important shifts. We are very gratified that this industry seems like it's competing again on [overdraft]. […] This has been a healthy move.”
• The CFPB wrote in a blog entitled “Banks’ overdraft/NSF fee revenues evolve along with their polices”: “Changes in overdraft program settings and in other checking account policies are making meaningful difference in the amount consumers incur in various fees while using their checking accounts at their banks.”
• According to a Pew analysis released in June 2022: “These reforms at the biggest banks should have outsized benefits for Black and Hispanic customers [and] should help reduce the number of unbanked Americans.”
• In an op-ed last year, Acting Comptroller of the Currency, Michel Hsu, echoed a similar sentiment, stating: “Several U.S. banks […] have begun reforming their overdraft programs and making them more pro-consumer. This development holds the promise of relieving millions of deserving people from the high cost of making ends meet, while empowering them and improving their overall financial health.”

What’s Next: The CFPB indicated in its recent overdraft report and in its Fall 2022 Unified Agenda it is “considering rulemaking activities related to these fees” and could move forward with the process as soon as this fall. Director Chopra previously echoed a similar sentiment at CBA LIVE, where he stated, “we’re in the early stages and thinking about what might be the options to make sure that this industry doesn't backtrack.”

Bottom Line: New bank-led overdraft innovations – ranging from real-time payment updates to grace periods, posting alerts and no-fee overdraft accounts – are here to stay, and they’re making a meaningful difference in the lives of the people we are all working to serve. As the CFPB considers future action, policymakers should recognize these reforms from the nation’s largest banks have occurred without regulatory or legislative intervention and collectively represent a transformational moment in time for the industry.