CFPB / RegulatoryPolitics & Money

Head of OCC backs CFPB on overdraft elimination

The Office of the Comptroller of Currency (OCC) has been working with the Consumer Financial Protection Bureau (CFPB) to reform and eliminate overdraft fees in banking, Michael J. Hsu, Acting Comptroller of the Currency, stated in a speech Wednesday.

Speaking to the Consumer Federation of America, Hsu pointed out that while previous regulatory efforts attempted to slow overdraft practices, they did not result in “sustained improvements.”

The news arrives just one week after the CFPB announced it will be enhancing its enforcement scrutiny of banks that are “heavily dependent” on overdraft and non-sufficient funds (NSF) fees. A study by the government watchdog found banks pulled in an estimated $15.47 billion in 2019 via these penalties.

“By definition, these fees are being paid by those bank customers who are the most financially vulnerable, i.e., those with low deposit balances,” Hsu said.

Nearly 20% of those labeled as “frequent” overdraft users identified in the CFPB study did not have a credit score.

Overdraft programs were originally created in the 1990s after banks began offering free checking, and were intended as a consumer convenience for infrequent and limited use to cover checking account shortfalls. Over time, however, routine and recurring use of overdraft programs became the norm rather than the exception, Hsu pointed out.

A handful of financial institutions have already implemented a version of overdraft reform, including PNC Bank, which launched its “Low Cash Mode” product in April that gives customers a 24-hour grace period to cure and get overdraft fees waived.

Following the CFPB’s overdraft release, Capital One announced it will completely eliminate all overdraft fees and NSF fees for its consumer banking customers.

And Chime, a startup bank out of Chicago, also offers a reform program coined “SpotMe” that fronts the amount of money a consumer overdrafted starting at up to $20.

“Promoting consumer financial health through responsible and fair products can be good business,” Hsu said. “The practices associated with these products are often consistent with sound risk management, and designing and offering these products can help financial providers better serve their existing customers and acquire new ones.”

Hsu noted other large banks have been rumored to be considering these modifications though did not disclose which ones specifically. Moving forward, Hsu said the OCC will continue to share principles and guidance on how banks can eliminate overdraft programs responsibly.

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