WASHINGTON — The Consumer Financial Protection Bureau announced Wednesday that it is taking new actions to push retail banks to offer and promote checking services that help customers avoid overdraft fees.
The CFPB sent a letter to the 25 largest retail banks Wednesday "encouraging" them to make lower-risk checking accounts available to customers and to market them more widely. The letter came ahead of a field hearing in Louisville, Ky., in which CFPB Director Richard Cordray warned that too few banks and credit unions offer accounts that either block charges that would result in an overdraft or otherwise seek to prevent consumers from over-drafting their accounts. Even many institutions that do offer such accounts do not advertise them, he said.
In his prepared remarks, he also said that many consumers may be denied a checking account because banks and credit unions increasingly rely on third-party reports of a consumer's checking account histories to screen potential customers — reports that the
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Community banks get almost half of their service charges from overdraft fees. That could become problematic as regulators continue to look into the issue.
June 22 -
Banks with more than $1 billion of assets are now required to report overdraft income in their call reports. Data released Wednesday reveals which banks rely most heavily on revenue from overdrafts and which could be most vulnerable to looming changes in overdraft regulations.
May 28 -
A new study by a consumer group found that checking account disclosures at the nation's largest banks have improved, but overdraft fee practices are largely unchanged from previous years.
May 12
"We are concerned that some people are being inappropriately sidelined by two things," Cordray said. "The first is the lack of account options that fit their financial needs and situations. The second is inaccurate information used to screen some potential customers."
Cordray said that low-risk accounts do not necessarily even mean traditional checking accounts.
"Many general-purpose reloadable prepaid cards are specifically designed to help consumers manage their spending while limiting their transactional costs and risks," he said.
In the letter to banks, Cordray said that it was "not being sent in reference to any sort of regulatory requirement" but was simply a "suggestion that I urge you to consider in serving your customers."
In tandem with the letter, the CFPB issued a compliance bulletin to banks, credit unions and other financial institutions warning the recipients of their obligations under CFPB Regulation V to have appropriate policies in place to ensure the accuracy of information furnished to credit reporting agencies, or CRAs.
"The supervisory experience of the Bureau suggests that some financial institutions are not compliant with their obligations under Regulation V with regard to furnishing to specialty CRAs," the bulletin said. "Furnishers' establishment and implementation of reasonable policies and procedures regarding the accuracy and integrity of information are essential components of a fair and accurate credit reporting system."
In his speech, Cordray drove home this point, arguing that consumers are being cut off from the financial system because there is inaccurate information being used to screen them.
"Banks and credit unions have obligations to foster accuracy when they submit information to the specialty consumer reporting companies about accounts that were closed for fraud or unpaid balances," he said in prepared remarks. "Those companies, in turn, assemble or evaluate all of the information provided, then sell it to third parties. All of this information is clearly related to preventing fraud and screening for credit risk. But because many banks and credit unions use this information to make decisions about whether to offer account products to consumers and on what terms, the accuracy of the information is crucial. If it is not accurate, then consumers will be inappropriately shut out of the banking system, with little or no effective recourse."
Cordray said that was a key reason for the remaining prevalence of unbanked and underbanked households. Others are kept away by high overdraft fees, he said.
"A second potential audience is consumers who have chosen to drop out of the banking system because they found themselves paying high fees they did not anticipate or, in hindsight, wanted to avoid," he said. "In the FDIC's latest survey of unbanked households, almost one-third identified the unpredictability of fees as a reason for not having a bank account. Lower-risk accounts could minimize or eliminate their exposure to such fees."
The agency also released a consumer guide to navigating the process of acquiring a lower-risk checking account, including information on how to obtain their checking account history report, how to dispute claims on that report and how to find lower-risk products.
