A checking account overdraft happens when people do not have enough money in their checking account to cover a purchase and the bank or credit union pays it anyway. When this happens, the financial institution may charge the consumer an overdraft fee. But before it does, it must get the consent of the consumer by having him or her “opt in” to pay these fees.
The bank or credit union must ask consumers if they want this service and explain that there is a fee involved. This is done through an opt-in form. If the consumer does not opt in and does not have the money to complete a purchase, it will likely be declined.
The CFPB is testing improvements to this opt-in form to make it easier to use and understand. The bureau interviewed more than 80 people across the country and came up with four versions of the form. It is seeking feedback in the new overdraft disclosure designs.
“Banks provide consumers with clear, concise procedures for opting into overdraft services,” Consumer Bankers Association President and CEO Richard Hunt commented. “According to a 2015 Novantas study, 99 percent of consumers who opt-in to POS/ATM overdraft services stated they were not confused by the current opt-in process. With nearly half of Americans unable to meet a $400 emergency expense, overdraft is a voluntary service which provides consumers access to needed short-term liquidity. We look forward to working with the CFPB on this issue, and we appreciate their concern for providing consumers with clear disclosures.”
The Independent Community Bankers of America (ICBA) is opposed to any changes that limits consumer choice regarding overdraft protection.
“Overdraft services are an important aspect of community banks’ relationship with their customers,” ICBA President and CEO Camden Fine said. “Consumers should continue to have the ability to opt-in for debit card overdraft coverage to avoid the inconvenience and embarrassment of a rejected debit card transaction. That said, ICBA adamantly opposes any CFPB rulemaking that limits the consumer’s choice on how they manage their accounts.”