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CBA Comment Letter for the hearing entitled “The End of Overdraft Fees? Examining the Movement to Eliminate the Fees Costing Consumers Billions”
Dear Chairman Perlmutter and Ranking Member Luetkemeyer:
The Consumer Bankers Association (CBA) submits this letter for the record for the hearing entitled “The End of Overdraft Fees? Examining the Movement to Eliminate the Fees Costing Consumers Billions.” Overdraft is a safe and affordable form of immediate short-term liquidity used by millions of consumers to ensure they can continue to purchase necessary goods and services. As policymakers’ review the overdraft market, it is essential that a better understanding of consumer demand for the product, its use as a form of emergency liquidity and the evolution of the overdraft product by financial institutions is warranted before making any changes that could have unintentional consequences on low to moderate-income Americans. CBA is the voice of the retail banking industry whose products and services provide access to credit to millions of consumers and small businesses. Our members operate in all 50 states, serve more than 150 million Americans, and collectively hold two-thirds of the country’s total depository assets.
Banks work diligently to provide access to highly regulated, financial products to U.S. consumers. As such, CBA supports strong consumer protections for all financial services and products. We believe consumers should receive transparent information to make informed decisions about the financial services and products they choose to use.
In December 2021, Acting Comptroller of the Currency Michael Hsu recognized overdraft services as one of the last viable sources of short-term liquidity for many U.S. consumers. In his remarks, Acting Comptroller Hsu commented on the state of the overdraft market in the United States, highlighting the important need to provide safe and affordable short-term liquidity options for consumers within the well-regulated, well-supervised banking system. Amidst a renewed focus from policymakers on examining overdraft practices, Hsu’s observations and recommendations illustrated how competition can empower and promote financial health for American families.
Recognizing the OCC’s intent to protect financially vulnerable Americans, Hsu commented while some banks have eliminated overdraft from their financial suite, widespread adoption of this practice may yield unintended consequences:
“While this prevents harm, it can also limit financial capacity. For those living paycheck to paycheck, the flexibility offered by low- to no-cost overdrafts can empower them to pay their bills on time, avoid high-cost alternatives, and improve their credit profile. […] Limiting overdrafts may limit the financial capacity for those who need it most.”
Over the past five years, the overdraft market has rapidly evolved, with a significant number of large banks unveiling consumer-friendly products. While commending recent efforts from banks including PNC and Capital One, Hsu also commented on the impact competition is having on the broader market:
"Several banks decided, on their own, to reform their overdraft programs to make them more pro-consumer.[…] A race to the top for the most pro-consumer overdraft program could help make it less expensive to be poor and demonstrate to consumers that the banking system has their backs.”
Acting Comptroller Hsu remains correct in his remarks about the import benefit the overdraft product provides to consumers. CBA encourages other policymakers to undertake a comprehensive review of the overdraft market before promulgating changes that may have adverse effects for consumers.
Consumer Demand Leads to Change
Well informed and technically savvy consumers drove recent changes to overdraft. The popularity of the product is clear, but banks proactively listened to their customers feedback which drove innovation and lead to the updating of polices to increase affordability and access for to those who use overdraft to help meet their short-term liquidity demands.
Recent research by Curinos, a global data intelligence firm, has found that consumers make highly informed choices about when to use overdraft services. These decisions are based on real-time access to account information, clear disclosures and personal experience. Policymakers should keep in mind the existing regulatory framework for overdraft services clearly acknowledges the role of informed individual choice and responsibility and is a voluntary action that is “opt-in.” Since the 2010 amendment to Regulation E (Reg E), significant changes were added to the law pertaining to overdraft services to increase transparency and improve disclosures.
To read full comment letter, click here.