CFPB Report on Small Debit Purchases and Overdraft Charges

The Consumer Financial Protection Bureau (CFPB) released a report last week in which the bureau raised concerns about the impact of opting in to overdraft services for one time debit card and ATM transactions. The study found that the majority of debit card overdraft fees were incurred on transactions of $24 or less, and the majority of these overdrafts were repaid within three days.

Specific findings of the report include:

  • Consumers use debit cards nearly three times more than writing checks or paying bills online: The most common way consumers access money in their accounts is through debit card transactions. The study found that consumers use their debit cards for purchases about 17 times a month; in comparison, consumers, on average, write checks fewer than three times per month, and they make automatic bill payments a little more than three times per month. Consumers who are opted in for overdraft services use their debit cards even more frequently, at 24 times per month. The wide use of debit cards can mean more fees for those who opt in for overdraft.
  • The majority of debit card overdraft fees incurred on transactions of $24 or less: When consumers use their cards, it is typically for smaller purchases than when they write checks or use a credit union teller. Consumers who opt in for overdraft services incur the majority of their debit card overdraft fees on transactions of $24 or less. Most overdraft transactions for which a fee is charged — including debit overdraft transactions — are $50 or less.
  • More than half of consumers pay back negative balances within three days: Most consumers who overdraw on their accounts bring their accounts to a positive balance quickly. More than half become positive within three days; and more than 75 percent become positive within a week.
  • Consumers pay high costs for overdraft “advances:” Overdraft fees can be an expensive way to manage a checking account. The median overdraft fee at the banks studied was $34. If a consumer were to borrow $24 for three days and pay a $34 finance charge, such a loan would carry a 17,000 percent APR.
  • Nearly one in five opted-in consumers overdrafts more than ten times per year: The study found that 18 percent of opted-in accounts overdraft more than ten times per year, compared to 6 percent for non-opted-in accounts. In addition, opted-in accounts are nearly twice as likely to have at least one overdraft transaction per year. Not all of these overdrafts incur overdraft fees, but many do.
  • Opted-in consumers pay seven times more in overdraft and NSF fees per year: Consumers who opt in for overdraft fee services are paying significantly more for their checking accounts than non-opted-in consumers — about seven times more in overdraft and NSF fees. On average, opted-in accounts pay almost $260 per year in overdraft and NSF fees compared to just over $35 for non-opted-in accounts.

The report provides credit unions with some insight into the Bureau’s thinking and the concerns it has regarding overdraft practices. According to the unified agenda, we may expect to see the start of rulemaking on overdraft practices early in 2015.

Compliance Question of the Week

If there are two members on a joint account, and one owner acting alone wants us to either close the account or to remove the other member, should we do this?

An account is a contract, and an account with two joint owners is a contract between three people: joint owner #1, joint owner #2, and the credit union. Even though joint owner #1 and the credit union agreed to close the account or to remove the other joint owner’s name, if joint owner #2 has not agreed to do this, then the other two people are breaching the contract.  However, the credit union can add language to its Membership and Account Agreement that says that one member can close the account. If this language is in the agreement, then the credit union would not be liable if it allows one member to close the account.  

Related Links:

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA released a statement reporting that 62 credit unions consented to civil money penalties for late filing of their first-quarter Call Reports.

The NCUA announced that it will be hosting a webinar on business continuity planning and disaster recovery on Wednesday, August 20, 2014.

Consumer Financial Protection Bureau (CFPB)

The CFPB is hosting a webinar to address FAQs on the TILA-RESPA Integrated Disclosures. The webinar will be held on Tuesday, August 26, 2014 at 11 a.m. Credit unions can register here.

The CFPB posted an article alerting college students about secret banking contracts that their colleges enter into with financial partners.

Financial Crimes Enforcement Network (FinCEN)

FinCEN issued guidance aimed at increasing transparency of cross-border cash movements.

FinCEN issued an advisory on FATF-Identified jurisdictions with AML and Counter-Terrorist Financing deficiencies.

Office of Foreign Assets Control (OFAC)

OFAC announced that it will be hosting the 2014 Financial Symposium on Tuesday, October 7, 2014.

OFAC released a Technical Notice alerting financial institutions to the fact that OFAC will no longer offer its sanctions on the file transfer protocol server.

OFAC has updated the SDN list as of August 7, 2014. The last update prior to this was August 6, 2014.

Office of the Comptroller of the Currency (OCC)

The OCC released a bulletin providing guidance on the application of consumer protection requirements for consumer debt-sale arrangements with third parties.

Office of the Federal Register (OFR)

The OFR has posted an article with helpful information for those interested in commenting on rulemaking proposals.

Federal Reserve Board (FRB)

The FRB released the August 2014 edition of FedFocus.

The FRB released the June 2014 Consumer Credit Report.

The FRB has published a Report on the Economic Well-Being of U.S. Households in 2013.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News.