ABA Statement for the Record: “ The End of Overdraft Fees? Examining the Movement to Eliminate the Fees Costing Consumers Billions.”

Chairman Perlmutter, Ranking Member Luetkemeyer, and distinguished Members of the Subcommittee, the American Bankers Association (ABA) appreciates the opportunity to submit a statement for the record for today’s hearing examining overdraft protection services.

ABA has long advocated for regulatory policies that ensure consumers have a wide range of options within the regulated banking industry to meet emergency expenses and to help customers address misalignments in deposits and payments. Consumers should be able to choose from revolving credit, installment loans, single payment loans, and overdraft protection services.

Overdraft protection services are an important source of liquidity for many Americans. With access to overdraft protection, bank customers can have confidence that they can pay their rent or utility bill, thereby avoiding late fees, a utility shut-off, or even eviction. For customers living paycheck to paycheck, access to overdraft provides significant value. The average transaction amount paid into overdraft was $198 in 2019, according to the research firm Curinos. Unsurprisingly, 9 in 10 consumers (89%) find their bank’s overdraft protection valuable, according to a February 2022 national survey by Morning Consult.

As Congress examines overdraft protection services, we urge it to take three steps:

1. Congress should respect and protect consumer choice. Consumers who do not seek access to overdraft services can open an overdraft-free account, which is widely available at banks across the nation; these include increasingly popular Bank On-certified accounts, which are now available at institutions making up 56% of the U.S. deposit market. However, for those consumers who value access to overdraft protection, Congress should not presume to know what is best for consumers and deprive them of their choice by imposing additional restrictions that would reduce availability of these important services. These restrictions would prevent important payments from being paid, deny customers access to liquidity, and cause customers to incur additional fees and inconveniences. Rather than protecting consumers who choose to access overdraft services, these proposals may drive customers from the banking system and to payday and title lenders, pawn shops, and other nonbank financial service providers.
2. Congress should direct the Consumer Financial Protection Bureau (CFPB) to study why consumers use and value access to overdraft protection. Congress’ inquiry into overdraft services should not be based on selective anecdotes, unsupported assumptions about consumer behavior, or Congress substituting its own view of what is “best” for consumers, but rather on an evidence-based understanding of regular users of overdraft protection—why they use the product, what they understand about their ability to opt in and out, and what their preferences are relative to available alternatives. Congress also should direct the CFPB to study the monetary value provided to consumers by overdraft—i.e., the amount of the charge that caused each overdraft and the amount of late and other penalty fees avoided by the institution’s honoring the charge. Absent compelling evidence of knowledge gaps or that consumers are using the product irrationally—i.e., evidence that regular users of overdraft protection do not understand the product and its costs relative to available alternatives—individuals should be assumed to be the best judge of what is in their best interest and should remain free to choose to use overdraft.
3. Congress should encourage regulators to reduce barriers that discourage banks from offering affordable small-dollar credit. We share Congress’ interest in promoting consumer access to safe and affordable small-dollar credit. Congress should encourage regulators to reduce barriers that discourage banks from offering affordable small-dollar credit, such as by directing the CFPB not to initiate new rulemaking to impose prescriptive underwriting or other requirements on small-dollar loans. We should be expanding responsible consumer options in this area, not limiting them.

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