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CFPB unveils prototypes for new overdraft disclosures

Citing the need to help consumers understand the differences between opting in and opting out of overdraft coverage, the Consumer Financial Protection Bureau released four prototypes for overdraft disclosures on Aug. 4. The "Know Before You Owe" disclosures detail the size of overdraft fees and describe when they can be charged. The disclosures also detail the optional nature of debit and automated teller machine overdraft coverage, since financial institutions are required, by default, to block any debit card purchase or ATM withdrawal that exceeds the amount of funds available. Financial institutions can allow consumers to overdraft on these products but only at the consumer's consent, per a 2010 regulation.

"Whether to opt in to overdraft is an important decision for consumers," CFPB Director Richard Cordray said in a conference call with members of the press. "They need their bank or credit union to describe the service fully and accurately while giving them a reasonable chance to consent."

Cordray clarified that, if adopted, the prototypes would replace existing model disclosures. The disclosures are not part of a regulatory amendment, although the CFPB is still considering new overdraft regulations and is in the "pre-rule stage" of proposed rulemaking. The CFPB declined to offer a timeline on possible work on a rule.

The CFPB says that consumers who opt in to overdraft coverage typically pay "substantially more" in fees than those who opt out. The agency released a report stating that customers who overdrafted more than 10 times in a 12-month period made up only 9% of all accounts but paid 79% of all overdraft and nonsufficient funds fees.

Overdraft has been a notable focus of the CFPB. The agency fined Regions Bank $7.5 million in April 2015, and fined Santander Bank NA $10 million in July 2016, for illegal overdraft practices. In both cases, the CFPB alleged that the companies charged fees to customers who had not consented to opt in to overdraft services.