New CBA Survey Illustrates Consumer Harm of CFPB Overdraft Proposal

WASHINGTON, D.C. – The Consumer Bankers Association (CBA) released a new survey that demonstrates how the Consumer Financial Protection Bureau’s (CFPB) proposed rule on overdraft would negatively impact consumers’ ability to make ends meet.

In a new letter sent to the CFPB, CBA highlighted that over 90 percent of banks that responded to the survey indicated that any of the CFPB’s proposed overdraft fee caps would materially reduce the amount of overdraft-related liquidity they are able to offer to consumers.

As outlined in the letter, the CFPB’s proposed rule on overdraft fails to appropriately address the likelihood of a widespread reduction of overdraft services, limiting access to a deeply valued service utilized by millions of consumers to cover the costs of their everyday needs:

“In the [overdraft proposal], the CFPB acknowledges the possibility that some consumers may be harmed by a reduction in access to discretionary overdraft products but nevertheless took the position that the CFPB was unable to quantify the impact. We disagree with the premise that the CFPB lacks access to evidence to support the fact that the reduction in access to overdraft services could be significant. Nonetheless, in an effort to help the Bureau further consider this issue, CBA has conducted a survey of its members to assess the likelihood and scope of a loss of liquidity that would result from the implementation of its Proposal.”

To view the survey results, click HERE. To read the full letter to the CFPB, click HERE.

Key Findings

• When asked if the CFPB’s “Overdraft Lending: Very Large Financial Institutions Proposed Rule” is finalized as currently drafted, and caps overdraft fees at the $3, $7, or $14 level:
  • 92 percent of banks that responded to the question reported that they would have to reduce the overdraft liquidity offered to their customers.

• The retail banks that responded to the survey provide overdraft services to an average of 1.7 million consumers, and the majority of respondents responding to the relevant questions report that if the CFPB were to cap overdraft fees at $3 or $7, they would have to reduce overdraft liquidity by 76 to 100 percent.

• If the CFPB were to cap overdraft fees at $14, the highest price cap in its proposed rule, one-third of reporting banks responding to the relevant question responded that they would have to reduce overdraft liquidity by at least 25 percent.

The Bottom Line

Through innovation and competition, banks have been able to reduce overdraft fees by 50 percent compared to pre-pandemic levels, while still preserving a critical form of liquidity for consumers.

Many of the consumers that rely on overdraft services lack access to traditional forms of credit. In a separate recent nationwide survey, CBA found that approximately two-thirds of consumers who report having overdrafted four or more times in the past twelve months said that they previously had a credit card application rejected.

Those consumers reported that, absent overdraft services, they would have been as likely to use a credit card to complete the transaction as having to pawn or sell their household goods.

This most recent survey by CBA conclusively demonstrates that the CFPB’s proposed rule would force many banks to reduce the amount of overdraft liquidity they offer consumers.

Given the number of consumers who rely on these overdraft services to make ends meet, the potential consumer harm posed by the CFPB’s proposed rule appears to be substantial.

CBA Advocacy

• To get the facts on why government price controls on overdraft services are misguided, click HERE.
• To view CBA’s recent national empirical survey on consumer need for overdraft products, click HERE.
• To read CBA’s blog post on the improper use of its Making Ends Meet survey to justify its overdraft proposal, click HERE.
• To read CBA President and CEO Lindsey Johnson’s recent written Congressional testimony on why financial regulatory policy should be guided by sound policy, not partisan politics, click HERE.