CFPB Releases Four Prototype Overdraft Disclosure Forms and a Report on Frequent Overdrafters

On Friday, August 4, the CFPB released four new prototype overdraft opt-in model disclosure forms and a report titled “Data Point: Frequent Overdrafters.” A summary of the forms and report are provided below. The prototype forms are still in the process of being developed, and the Bureau is requesting feedback as it works toward finalizing them, but the prototypes are intended to replace the current model form A-9 found in Appendix A of Regulation E. The report focuses on bank customers who overdraft their accounts more than 10 times per year and provides context to the Bureau’s concerns on the impact overdraft services may have on financially vulnerable consumers.

Although overdrafts have long been a focus of the CFPB’s enforcement and supervisory activities, this represents the first sign of movement by the Bureau toward the potential new overdraft services rulemaking listed on its 2017 rulemaking agenda, which is currently in the pre-rule stage. We anticipate that aspects of the approach and language contained in these prototype forms may eventually make their way into account agreements. We invite you to review the forms and report to gain insight into the CFPB’s view of overdraft services and the types of concerns the Bureau may attempt to address in future rulemaking.

“Know Before You Owe” Prototype Opt-In Disclosures

The CFPB has designed four prototype overdraft service “opt-in” forms that are similar to its “Know Before You Owe” model TILA-RESPA mortgage loan disclosures. Using tables that compare the potential costs of opting in and opting out, the Bureau emphasizes the greater fees consumers may incur by enrolling in overdraft services. While these forms are only prototypes that will be subject to further testing by the CFPB, they signal the approach and language the Bureau seems to favor, which may eventually be incorporated into account agreement disclosure requirements in future rulemakings.

“Data Point: Frequent Overdrafters” Report

The CFPB reviewed data from over 40 million consumer bank accounts across a variety of institutions and found that “frequent overdrafters” — those who overdraft their accounts over ten times per year — incurred the majority of fees at the banks included in the study. The study further found that these consumers exhibit certain characteristics that indicate they are more financially vulnerable than those who overdraft their accounts less frequently. Notable findings include:

• Frequent overdrafters comprised only 9% of all accounts at the banks studied, but paid 79% of all overdraft and NSF fees
• While frequent overdrafters that opt in to overdraft services typically only overdraft their accounts four more times per year than frequent overdrafters who do not, those who opt in typically incur 13 more overdraft fees per year
• Frequent overdrafters tend to have lower daily account balances, have credit scores below 600 or no credit scores, and use their debit cards six times more than consumers who do not overdraft their accounts

If you have questions about the report or other related issues, please contact an Orrick attorney with whom you have worked in the past.