WASHINGTON-Will a study of checking account disclosures and financial institution checking practices help to tighten the Consumer Financial Protection Bureau's focus on overdrafts?
The study, completed by Pew Charitable Trusts as part of its Safe Checking in the Electronic Age project, resulted in the organization making several recommendations to the CFPB regarding checking and overdraft practices, suggesting FIs be more transparent in their checking pricing and overdraft options.
The CFPB stated earlier this year it will look closely at financial institutions' overdraft practices.
Michael Moebs, economist and CEO at Moebs $ervices, Lake Bluff, Ill., previously stated that financial institutions must be more transparent in their overdraft pricing and with how their overdraft processes work to dissuade the CFPB from controlling overdraft pricing (CU Journal, March 21, Disclosure Exposure).
Four Points Outlined
Susan Weinstock, director of the Safe Checking Project, said Pew outlined four points with the CFPB during the agency's public comment period on overdraft practices:
* All financial institutions should be required to offer uniform checking disclosures in their branches and on their websites to help consumers comparison shop.
* All overdraft options should be clearly laid out.
* Big bank's $35 median overdraft fee is excessive and the CFPB should determine what it costs FIs to provide the service and come up with a cost that is reasonable and proportional.
* Prohibit the reordering of transactions to maximize overdraft revenue.
Weinstock told Credit Union Journal that the study showed that many of the 12 banks included in the Pew study had stopped their practice of ordering transactions. However all who were not employing the policy had reserved the right to go back to the practice. "We think the CFPB should stop this practice altogether,."
CUs fared better than banks in the study, having shorter documents and lower fees than big banks. Yet the report explained, CUs could also do a better job, as well.
The study found the median length of a checking disclosure at the largest credit unions (as ranked by deposits) is 31 pages, which is less than half the length of the median disclosure at big banks. The study found disclosures at those CUs ranging from nine to 53 pages.
However, despite the relatively briefer disclosures, the study said many CU disclosures do not include information that would allow the average consumer to make comparisons on fees, conditions and terms.
A Mixed Bag
One of the findings is something of a mixed bag for credit unions. The Safe Checking project found, for instance, no credit union providing information related to fees charged for so-called "extended" overdraft fees, those fees charged when an overdraft is not made good within a certain period of time. But it also said that is likely because credit unions don't charge such fees; it called on credit unions to clarify that position.
The study suggested that issue and others could be resolved with a simple, basic disclosure form.
According to Pew Charitable Trusts, the median overdraft fee for credit unions is $25. Among the other findings by the Safe Checking Project:
* Of the 12 CUs analyzed, all but one offered an overdraft "transfer plan" that allows members to choose to have shortages covered by a funds transfer or credit card. Of those, just five disclosed their fees, which averaged $5.
* Like banks, the project said credit unions use language that is confusing to consumers, with different terms used for different fees, such as overdrafts. Among the terms used were "courtesy pay," "overdraft fee," "bounce protection," and "nonsufficient funds."
* The median number of fees charged by credit unions was 18 (the high was 29). The median number charged by banks was 26, with a high of 48, the report said.
For info: New Analysis Sees Threats To The Future Of Overdraft Revenue; www.pewtrusts.org