CBA: Access to Overdraft Critical For Millions of Families

Tomorrow, Consumer Bankers Association (CBA) General Counsel and Senior Vice President, David Pommerehn, will testify before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection for a hearing entitled, “Examining Overdraft Fees and Their Effects on Working Families.” During the hearing, Pommerehn will focus on the following themes:

Consumers Choose Overdraft

For millions of American families, overdraft provides a valued emergency safety net in times of need – whether to pay their rent or simply put food on the table.

Consumers who opt-into overdraft do so willingly and value the certainty of knowing a transaction which otherwise may have been declined due to lack of funds, is covered by their bank.

  • As opposed to fees charged by other industries, financial tools like overdraft are chosen by the consumer upfront when their account is opened.
  • Banks undergo rigorous underwriting practices and are required by law to have clear and conspicuous disclosure of material terms and conditions. This empowers consumers to make informed financial decisions on the type of product that best serves their needs.

Overdraft Provides an Emergency Safety Net

A 2018 Federal Reserve survey estimated nearly 40% of American adults wouldn’t be able to cover a $400 emergency with savings, alone. Similarly, Bankrate states “63% of American adults say they are unable to pay an unexpected expense with their savings…”

Banks are aware of these challenges and work diligently to provide access to safe and affordable products to consumers. The demand for overdraft is based largely on customer need and choice and, for many, is the last viable source of short-term liquidity.

Bank-Led Innovations Deliver Greater Choice, Increased Transparency, Lower Costs

Driven by a commitment to meet evolving consumer demands, America’s leading banks have unveiled innovative financial tools to provide consumers more choice and flexibility to avoid fees. Some of these bank-led innovations, which have occurred without regulatory intervention, include:

  • Real-time payment updates
  • Grace periods
  • Posting alerts
  • No-fee overdrafts

Leading regulators have acknowledged banks’ efforts to meet consumers’ needs, including:

  • CFPB Director Rohit Chopra: “This is one of the beauties of a competitive market. When there is real competition […] people can benefit across the board.” – April 27, 2022, commenting on recent bank-led overdraft innovations while testifying before the House Financial Services Committee
  • Acting OCC Comptroller Michael Hsu: “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.” – March 28, 2022, Op-Ed in American Banker

Consumers Understand & Value the Product

Recent data from a December 2021 Curinos study, Competition Drives Overdraft Disruption, found:

  • Even as overdraft use has declined by 40% between 2010 and 2020, a majority of regular overdraft users knowingly use the product and value the emergency safety net it provides in times of need.
  • Overdraft fees, per U.S. adult, have declined by 77 percent, or $158 since 2008.

Further, overdraft fees as a percent of total revenue across the banking industry made up less than 2 percent in 2019, and Curinos projects recent bank-led overdraft innovations will decrease fees by approximately $7.5 to $10 billion dollars.

To watch the full hearing tomorrow, Wednesday, May 4, at 2:30PM ET, click HERE.

CBA Advocacy

In March, CBA released a new video to correct misinformation surrounding bank fees, to underscore banks’ commitment to providing transparency and choice, and to highlight some of the bank-led innovations designed to meet evolving consumer demands.

Ahead of a scheduled hearing examining the overdraft marketplace last month, CBA sent a letter to Congress, highlighting the bank-led overdraft innovations designed to meet evolving demand and cautioned against restricting a product millions of consumers knowingly use and value in times of need.

Following the CFPB’s launch of a new initiative examining fees charged by banks and other financial institutions, CBA’s President and CEO Richard Hunt said: “This is fuzzy math at its best and political theater at its worst … To best serve America’s families and small businesses, the Bureau has a responsibility to communicate with clarity and precision.”

Responding to the Bureau’s renewed focus on fees charged by banks, CBA has worked to correct the record and deliver the facts about how emergency safety net products like overdraft are valued by millions of consumers in times of need.