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From Banking and Finance Law Daily, August 25, 2017

ABA questions CFPB’s overdraft study, superiority of prototype forms

By Charles A. Menke, J.D.

The American Bankers Association has expressed a number of concerns in response to the Consumer Financial Protection Bureau’s release of new overdraft disclosure forms and an accompanying research report, "Data Point: Frequent Overdrafters." The Bureau, in an attempt to make the costs and risks of overdraft protection easier to understand, is testing four prototypes that each contains a simple, one-page design to help consumers understand the costs of opting in and evaluate the risks and benefits (see Banking and Finance Law Daily, Aug. 4, 2017). in a letter to the Bureau, the ABA questioned the credibility of the report’s data, the scope of the study, and the superiority of the prototype forms over the current model form that financial institutions provide to consumers weighing overdraft coverage. The organization also cautioned on the consequences of further restricting overdraft protection.

Stale data. According to the ABA, the Bureau’s research report relies on stale data from a miniscule number of large banks. The organization is concerned that report’s findings "reflect transactions that occurred up to six years ago—when bank overdraft practices differed significantly from today’s practices—and transactions from only large banks." The ABA urged the Bureau to correct these shortcomings so that its decisions are based on recent data reflecting current bank practices representative of all banks, as well as consumer attitudes and preferences.

Restrictions and consequences. The ABA also cautioned that "further restrictions on overdraft services could reduce the availability of free and no-minimum checking accounts, potentially pushing certain consumers out of the banking system." Accordingly, it stressed that any testing of the prototype forms must be conducted in an open and transparent manner utilizing Administrative Procedure Act rulemaking procedures and the Paperwork Reduction Act’s standard clearance process.

Prototype concerns. The ABA further questioned whether consumers lack the information necessary to make informed decisions regarding the use of overdraft protection, contending that the current disclosure form adequately allows consumers to make informed overdraft decisions. in the ABA’s view, the prototype forms are deficient in two respects. First, the forms fail to clearly state that, if a customer has opted in to overdraft protection, the bank pays the overdraft at its discretion. Second, the forms do not clearly communicate that the bank will decline a debit or ATM transaction that results in insufficient funds if the customer has not opted in. "[i]t is critical that the Bureau demonstrate, with publicly-revealed data, that any new disclosure is superior to the existing Model Form disclosure, in that it improves customers’ understanding and informed decision making regarding use of overdraft," the letter emphasized.

Companies: American Bankers Association

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