Last week, Barbara Mishkin posted generally on the CFPB’s overdraft fee initiative. I found the CFPB’s prototype “penalty fee box” particularly interesting and have a few comments: 

  • While it is certainly possible that the CFPB will both require targeted disclosures and sharply circumscribe consumer choice, I take some hope from the penalty fee box disclosure that the CFPB will focus on requiring clear disclosure and continue to allow consumers a considerable measure of autonomy.
  • To my knowledge, the CFPB has not described the process it followed in coming up with the first iteration of the penalty fee box. It would be interesting to know what consumer testing has been used to date and what testing is planned for the future.
  • The huge bold disclosure of the dollar amount of overdraft and NSF fees immediately draws the reader’s attention, as undoubtedly the CFPB intends. It speaks volumes about the importance the CFPB attaches to overdraft and NSF fees.
  • The CFPB’s disclosure of “three simple ways to lower these fees” contains two interesting items and an equally interesting omission: (1) The disclosure suggests that consumers should sign up for text message alerts to warn when the account balance is getting low, suggesting that the CFPB regards text alerts as a best practice and potentially a candidate for a required practice. (2) The disclosure also suggests that consumers should consider opting-out of overdraft coverage on debit and ATM transactions, reflecting another attempt to steer consumer behavior. (3) The disclosure does not include overdraft lines of credit as a fourth way of lowering fees. Perhaps this reflects that many if not most habitual overdrafters will not qualify for these lines. It is unclear whether the CFPB will ultimately allow depository institutions to include this fourth fee reduction method in their disclosure.
  • Certainly, the initial CFPB penalty fee box is not perfect. For example: (1) The portion of the box on the front of the statement differs from the continuation of the box on the back of the statement insofar as the language on the front states that the consumer “overdrew $49.67 on you account to incur these fees” but the language on the back states that the amount overdrawn may include items returned for insufficient funds. The disclosure on the front should be modified by adding language along the lines of the underscored material that follows: “You overdrew $49.67 on you account and presented $322.32 of dishonored items to incur these fees.” (2) The statement on the back that the amount overdrawn may include items returned for insufficient funds reflects a strange terminology since returned NSF items are not added to overdraft balances. (3) The disclosure on the back of the number of times the account was overdrawn does not explicitly include the number of overdraft items that were returned unpaid. It should.

While the initial version of the penalty fee box is not perfect, I have to say that, all in all, it strikes me as a thoughtful first step.