Bankers, Consumer Advocates Debate Overdrafts at CFPB Roundtable

NEW YORK — Bankers, consumer advocates and other industry members gathered on Wednesday to hear officials from the Consumer Financial Protection Bureau outline their concerns about overdraft practices.

The agency said Wednesday that it was targeting banks' overdraft protection practices, and CFPB Director Richard Cordray traveled to Manhattan that same day to host a roundtable discussion about the new probe.

Following his prepared remarks, consumer advocates weighed in. Sarah Ludwig, executive director of the Neighborhood Economic Development Advocacy Project, said that "the abusive overdraft protection is yet another way banks fail to serve low income people and communities." She provided an example of someone who had contacted her group last month, who had accumulated $1,390 in overdraft fees in two months as a customer at a "large national bank."

Susan Weinstock, project director at Pew Charitable Trusts, said her group has developed a model disclosure box for key fees and conditions for a checking account, which includes clearly outlining overdraft protection.

Bankers also attended the event. Andrew T. Rowe, a senior vice president at Bank of America Corp., said that in 2009 his company began "talking directly to our customers about how they felt about our current overdraft practices. What they told us was they did not like to be surprised by being charged for spending money they don't have. As a result, we made the decision to eliminate overdraft at the point of sale."

Rowe said that B of A now declines debit card transactions at the point of the sale if the customer does not have sufficient funds. He said the group had also created a "clarity statement" that is provided when a customer opens an account, which outlines all of the features of the account in "clear, straightforward English."

John P. Carey, managing director of global consumer banking, governance and external affairs at Citigroup Inc., said it was important to distinguish between ATM and debit transactions with other forms of payment when discussing overdraft protection.

"Frustration that consumers express center on those ATM and debit transactions where an overdraft fee could have been avoided if the consumer had known at the point of sale that such a transaction would result in a fee," Carey said. "Conversely, our customers find overdraft protection services for checks and ACH transactions to be of value."

Carey said that customers prefer to have the bank cover the occasional overdraft payment for a fee rather than having a check returned.

CFPB Deputy Director Raj Date asked consumer group representatives what they had heard from consumers specifically about using overdraft protection in lieu of payday loans.

"Our goal should not be to have better … 'bad products', that are sort of marginally better than payday loans, or marginally better overdraft," Ludwig responded. "Our goal should be fair, affordable, decent, beneficial, non-predatory practices."