A group of financial trade associations led by the American Bankers Association (ABA) has urged the Consumer Financial Protection Bureau (CFPB) to conduct a study of consumers’ preferences on overdraft and release the findings before acting on overdraft practices.
The financial trade group highlighted findings from a recent Morning Consult survey that nine in 10 US adults find their bank’s overdraft protection valuable, and that three in four were happy when their payment was covered when overdraft protection was used.
“Restrictions on overdraft may lead financial institutions to stop offering these services to their customers, which would result in significantly more returned checks and declined transactions,” the group warned.
It said it could lead to unnecessary credit rating harm, returned item fees charged by the institution or by the merchant, fees from landlords and others, or requirements to pay using alternative methods such as money order.
The group also cited a survey by research firm Curinos, which found that 62% of consumers would reconsider their support for new regulation of overdraft if it limited access to the service.
In addition, the group recommended that the CFPB study frequent overdraft users to ensure they fully understand how and why these consumers use overdraft, as well as understand the level of understanding about overdraft offerings.
“Absent compelling evidence of knowledge gaps or that consumers are using the product irrationally—i.e., evidence that regular users of overdraft protection do not understand the product and its costs relative to available alternatives—people should be assumed to be the best judges of what is in their best interests and should remain free to choose,” noted the group.
The groups’ letter follows the bureau’s release of two research reports in December which signalled that it would act on overdraft fees and ‘take action’ on overdraft fees and “enhance its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees”.