The CFPB has issued another report on checking account overdraft services, “Data Point: Frequent Overdrafts.” The new report represents the CFPB’s third report dealing with overdraft services. It previously issued a white paper in June 2013 and another “Data Point” report in July 2014.
In addition to the new report, the CFPB released four one-page prototype model forms to replace the current Regulation E model form for banks to use to disclose overdraft fees and obtain a consumer’s consent to the bank’s overdraft service for ATM and one-time debit card transactions. The CFPB stated in its press release that it developed the prototypes through interviews with consumers and is now testing them more widely.
The 2014 report used data taken from account-level and transaction-level data for about two million accounts at large banks covered by the CFPB’s supervisory authority (i.e., banks with more than $10 billion in total assets). The new report states that the CFPB relied on a portion of the data set used in the 2014 report and supplemented that data with “additional data for a randomly selected subset of the active accounts in our sample from a nationwide credit repository.”
According to the report, the data set used for the new report contains information on about 240,000 active accounts, including about 48,000 accounts belonging to “frequent overdrafters.” The CFPB defines “frequent overdrafters” as “accounts with more than 10 overdrafts and NSFs combined in a 12-month period.” (“Very frequent” overdrafters are defined as “accounts with more than 20 overdrafts and NSFs combined in a 12-month period,” “non-overdrafters” are defined as “those with no overdrafts or NSFs in a 12-month period, and “infrequent” overdrafters are defined as “those with three or fewer overdrafts and NSFs combined in a 12-month period.”)
The new report’s key findings include:
- Frequent overdrafters account for nine percent of all accounts but paid 79 percent of all overdraft and NSF fees. Very frequent overdrafters account for about five percent of all accounts but paid over 63 percent of all overdraft and NSF fees.
- Frequent overdrafters generally have lower credit scores and are less likely to have a general purpose credit card than non-overdrafters or infrequent overdrafters. Those that have a general purpose credit card have less available credit on such cards than non- or infrequent overdrafters.
- The dollar amount of monthly deposits into a checking account and the variability in monthly deposits, even after excluding low-activity accounts, is not strongly correlated with the number of overdrafts or NSFs incurred. Once low-activity accounts are excluded, the CFPB found that overdrafters have lower median deposits than non-overdrafters.
- The account usage characteristics and circumstances of frequent overdrafters vary considerably. Four groups constituting nearly 70 percent of frequent overdrafters have low end-of-day balances (with medians between $237 and $439), low or moderate credit scores (with medians between 532 and 661), and low or moderate monthly deposits (with medians between $1,516, and $2,724). Another group constituting 20 percent of frequent overdrafters has low end-of-day balances (median of $140), low monthly deposits (median of $1,313) and no credit score. The remaining group, constituting about 11 percent of frequent overdrafters, has higher end-of-day balances (median of $1,403), significantly higher monthly deposits (median of $7,828), but only moderate credit scores (median of 635).
- Compared to the median frequent overdrafter that has opted-in to overdraft services on one-time debit card transactions, the median frequent overdrafter that has not opted-in experiences only four fewer overdrafts per year but, accounting for fee reversals, pays 13 fewer overdraft fees per year. Thus, opted-in consumers pay significantly more overdraft fees but incur only slightly more overdrafts than consumers who are not opted-in. The CFPB suggests that this is likely the result of “authorize positive/settle negative” transactions (i.e. transactions that result from a bank’s payment or authorization of another debit between the authorization and settlement of the one-time debit transaction where the intervening debit creates a negative balance).
The CFPB offers no conclusions based on its findings and while the CFPB does not discuss its rulemaking plans, rulemaking does not appear to be imminent. In its Spring 2017 rulemaking agenda, as it did in its Fall 2015 agenda and Fall and Spring 2016 agendas, the CFPB stated that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.” We have previously suggested that the CFPB may feel it is less urgent for it to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order