CFPB pushes Are overdraft fees worth the risk for banks?

Banks and credit unions should carefully consider the compliance and reputational risks of eliminating overdraft fees, as the Consumer Financial Protection Bureau (CFPB) pushes to reduce these fees. The proposed rule would apply to financial institutions with more than $10 billion in assets, potentially cutting billions of dollars in fee income for large banks. The CFPB’s recent report showed that many consumers are still receiving unexpected overdraft fees and suggested that cheaper alternatives, such as credit card credit, are available to them. However, a survey by the American Bankers Association (ABA) found that 88% of consumers find overdraft protection valuable, with 77% being glad that their bank covered their overdraft payments. Banks should assess the dependency of their institution on overdraft fees and consider how eliminating this source of income would impact their bottom line. They should also review their disclosures about changes to their overdraft programs and the use of static or dynamic limits, ensuring that they are providing clear information to consumers. Banks should also evaluate their overdraft program’s fees and consider whether a small-dollar loan at more reasonable rates would be more consumer-friendly. Regular risk assessments of overdraft programs are essential for banks to identify potential issues and make necessary changes, rather than waiting for examiners to uncover problems.