Roughly 10 years ago, policymakers made significant changes to the existing overdraft rules to increase transparency and improve physical disclosures.
Today, in conjunction with these rules and advances in mobile banking technology, consumers have more account information at their fingertips than ever before, making it easier to manage their funds. However, the fact remains a large portion of Americans do not have enough money to cover emergency expenses or simply run out of funds before payday hits.
Policymakers need to take a measured approach to any changes to the current rule and be mindful of consumers’ financial needs.
The initial changes required customers to affirmatively opt in to overdraft services, with the ability to opt out and back in at any time, while also receiving notice of their options with any overdraft they incur. The choice to opt in or opt out of overdraft protection services provides an important backstop for consumers during financial emergencies and helps them better manage finances.
Despite these facts, some groups have argued the overdraft services are harmful to consumers and assume it’s solely used by uninformed consumers. This is fundamentally incorrect.
Research
The Consumer Financial Protection Bureau is
The current regulatory mandates concerning overdraft services afford consumers strong protections via detailed disclosures. The industry needs regulatory policy and oversight that will not impede banks’ current ability to offer a variety of overdraft payment services in order to meet their customers’ financial needs.
It is also important to note when the new rule was crafted, the Federal Reserve Board determined the requirements should only apply to ATM and point-of-sale transactions, not physical checks or ACH transactions.
This is largely due to extensive data gathered through
As the Fed board found, checks are most often used to pay a consumer’s most important bills. Placing restrictions on overdraft services would take away a well-regulated source of financial liquidity, causing consumer harm through returned payment fees, accumulation of higher merchant-imposed interest or late-payment penalties for returned checks.
Some have suggested changes to the rule based on the size of a financial institution. We believe this would create a fragmented consumer protection framework and confuse consumers. The notion that consumers would receive less protection by exempting certain financial institutions from the rules is contrary to the very notion of consumer protection.
This kind of bifurcated application of rules creates fragmentation in vital protections and an uneven playing field between financial institutions. Simply put, a harmonized and
The possible monetary and nonmonetary consequences of restricting overdraft services would be broad and complex for consumers, service providers and merchants. For consumers, restrictions on overdraft services would reduce access to valuable liquidity.
Merchants and service providers would be adversely affected through loss of income from the sale of goods or services, and incur higher costs as a result of returned payment items or disruption to their receivables cycle.
We believe the current regulatory framework concerning overdraft services afford consumers strong protections via detailed disclosures and allows an avenue for financial management when funds are low.