LAKE FOREST, Ill.—Should the CFPB’s new Know Before You Owe overdraft disclosure prototype forms be formally required, they should not be a big addition to CUs’ compliance plates, asserts one analyst.
The CFPB last week unveiled four prototype forms it is testing to help consumers better understand overdraft services and costs when opening new checking accounts. Not yet mandatory, a new form is being looked at as an upgrade to the seven-year-old opt-in disclosure banks and credit unions are already required to use since July 2010 to obtain consent to charge debit card and ATM overdraft fees.
“Overall, the proposed updates to the opt-in form are positive. The CFPB is offering a new look to an old form,” explained Michael Moebs, economist and CEO of Moebs Services. “While the form should be easier for the consumer to read, the content and substance of the document remains unchanged. The CFPB is not proposing any regulatory changes, just swapping forms.”
What’s the Impact On Credit Unions?
The financial impact to implement any new proposed opt-in form appears to be minimal, offered Moebs.
“There certainly is a labor cost to update the form across all necessary channels: website, online account opening, new account desks, and branches. Most Important, there is absolutely no changes to the opt-in process or requirements, so typical compliance costs related to training and communications is neutral,” he said. “This does present an opportunity for banks and credit unions to revisit opt-in performance and reach out to existing checking account holders.”
Promoting the clarity and also benefits of overdraft services with the new opt-in disclosure will benefit both the financial institution and the consumer, insisted Moebs.
“If executed correctly, depositories can use the new disclosure to obtain more checking users, and even more revenue.”
‘A Different Place’
The current opt-in disclosure is seven years old, and due for an update, said Moebs.
“Puzzling is the CFPB’s extensive OD study published with the prototypes which relies on data equally as old, January 2010 – June 2012,” pointed out Moebs. “The world of financial services including consumer checking behavior is a different place today than five to seven years ago.”
Payment channels have evolved substantially and electronic transactions have increased exponentially in that time, Moebs noted.
“While the intent to introduce clarity and simplicity to the overdraft choices of consumers can be lauded, the data used in the study is unfortunately outdated and skewed,” stated Moebs. “Today, there is more money in checking balances, more monthly transactions, easier access to funds with mobile apps and wallets, and also more transparent, friendly overdraft pricing with daily caps and automatic de minimis fee waivers.”
Moebs pointed out that the CFPB’s OD study went to only 240,000 individuals from only a “handful” of larger banks.
“That total, 240,000, is only 0.07% of total checking accounts and way to small a sample to be statistical,” said Moebs. “Also, no credit unions, thrifts or community banks were used in the study.
What Other Data Show
In addition, continued Moebs, when examining the CFPB’s own complaint data only 1.4% of the total 1,154,456 complaints recorded from December 2011 through March 2017 deal with overdrafts.
“Isolating the data to just the 8.6% complaints dealing with checking accounts, overdrafts fall to third place behind opening/closing accounts and deposits/withdrawals as the most complained about checking features,” said Moebs. “Major OD regulation overhaul from the CFPB is not necessary, when we are dealing with such a small percentage of consumer overdraft complaints. The consumer is more concerned with credit reporting, mortgages, and debt collection.”
What the CFPB Is Doing
After five years of reviewing overdraft programs and publishing three major studies, the CFPB is ultimately reaffirming the OD amendments to Reg DD and Reg E in 2010 were positive for the consumer, said Moebs.
“The CFPB, at least at this time, has not shown the need to introduce new OD regulations, but merely offer updates to an existing form,” he said. “In 2010, the Federal Reserve wrote a good regulation to guarantee consumers more options and choices when it comes to overdrafts. The CFPB seems to be acknowledging this and hoping to improve it with better disclosures. There really is no need to alter existing overdraft regulations until we start to see major advancement in the payment systems.”