Possible new rules on overdraft protection and fees are one of the top items on the CFPB regulatory agenda this year.
“This one slipped from last year's agenda and is up for consideration in the middle of this year,” said John McKechnie, a partner at Total Spectrum, a Washington consulting firm.
The possible direction of new regulations for overdraft protection was indicated in a letter last fall from Rep. Carolyn Maloney (D-N.Y.) to CFPB Director Richard Cordray, drawing on the agency's report on overdraft fees.
She urged CFPB to extend opt-in overdraft rules currently applying to ATM withdrawals and non-recurring point-of-sale transactions to include checks and ACH payments. Many credit institutions extend automatic overdraft protection unless a customer opts out of it.
Maloney, the top House Democrat on the Joint Economic Committee, also urged the CFPB to adopt rules requiring overdraft fees to be “reasonable and proportional.” She noted that small overdrafts of $24 were charged a median overdraft fee of $34, yielding a 17,000% interest rate on an overdraft resolved within three days.
“Regulators tend to look at overdrafts from a high level,” McKechnie said. “It can look very different on the ground.”
Many customers seem to like the protection and there are products that are not predatory, he said.
“It's not black and white,” McKechnie added.
Inertia is what keeps customers who are unpleasantly surprised by an overdraft fee from opting out, but it would also prevent customers who may appreciate the protection from opting in, if that were to be the requirement across the board.
“It depends to what extent the CFPB looks at the big picture,” said Dan Mica, former CUNA CEO who is now a private consultant in Washington. Many customers might be happy to pay a fee to avoid a bounced check, but may not take the trouble to opt in for overdraft protection, he added.
Read more about the CFPB's 2015 regulatory agenda in the Jan. 28 issue of Credit Union Times.
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