Banking groups wary of post-discovery future
The news: American Financial Services Trade Groups led by the American Bankers Association (ABA) request the Consumer Financial Protection Bureau (CFPB) for pause sound ongoing crackdown on overdraft fees, arguing that it could deprive consumers of an option to avoid falling behind on personal spending. In the meantime, they want the regulator to collect information on frequent overdraft users.
More on this: What is at stake is a source of income that earned banks $8.82 billion in 2020, according to S&P Global Market Intelligence.
The associations argue that restricting overdraft items will make it worse for some people as they lose access to a solution that helps them manage their short-term cash, which could lead to:
- An increase in declined transactions and returned checks.
- Fees for merchants and owners.
- Blows to credit ratings.
- Obligation to use money orders or other methods of payment.
The groups also highlighted public opinion data to support their cause, such as:
- A Survey 2021 of Curinos who found 62% of respondents said they would reconsider supporting regulation if it resulted in limited access to overdraft.
- A morning consultation survey showing that three out of four respondents were satisfied that their overdraft payments were covered. The October 2021 survey was order by the ABA, and also found that 62% responded that charging for overdraft protection was reasonable.
Business organizations also pointed to measures financial institutions are already taking to reduce consumer exposure to overdraft fees, such as 24-hour grace periods allowing people to clear their negative balances, quick access to deposits and the ability to link their transaction accounts. to external funding sources.
Anti-exposure measures have recently been added by a series of large incumbent banks, such as Wells Fargo, Bank of America, and JPMorgan Chase.
What do associations want? They called on the CFPB to study consumer overdraft preferences and collect data, including:
- What are the times and needs that typically lead consumers to go overboard.
- Whether overdraft protection has helped consumers avoid late fees, hardships such as evictions or utility cuts.
- If they know of alternatives to cover their overdrafts or if they have taken advantage of them.
- Why people opt for overdraft protection over other available options.
The big takeaway: While trade groups’ demand that the CFPB collect information about consumer motivations and awareness is reasonable, the legal reduction in overdraft fees will not necessarily cause people to trade one difficulty for another.
A growing number of incumbents are already adding or proactively promoting alternative liquidity support services, such as:
- Short term loans for small amounts.
- Make existing anti-overdraft measures more practical by waiving transfer fees for external accounts.
- Grace periods and early access to direct deposits.
Consumers aren’t necessarily enthusiastic about overdraft fees, despite questioning whether they’re reasonable.
- banking giant Truist— who this week unveiled two no-fee accounts and anti-exposure measures—Noted that he made these changes after getting feedback from his customers:
- Morning Consult survey data that has been highlighted this month find that people who rely on overdraft were more than twice as likely to be receptive to starting a relationship with another financial institution in the next six months.
- A June 2021 survey of the company also showed a mixed sentiment about the practice, with 52% viewing fees as unfair and 48% considering them fair.