(Bloomberg News) Two years after regulators gave Americans more power to manage overdrafts of their checking accounts, the Consumer Financial Protection Bureau is reviewing bank practices to determine if the crackdown went far enough.
The agency, which will decide by the end of the year whether to write new rules, is scrutinizing nine banks including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp., said four people briefed on the examination.
The inquiry focuses on how financial institutions persuade customers to enroll in what they call overdraft protection programs. Examiners are looking at online and mailed marketing material as well as scripts used by the banks' customer-service representatives to determine whether they could be confusing to consumers, said the people.
Bureau examiners have conveyed "a tone of skepticism that this is really a good product for borrowers," said Jo Ann Barefoot of Washington-based Treliant Risk Advisors, who counsels banks on dealing with federal supervisors.
While tighter rules could help U.S. consumers, they also could threaten a major revenue stream for banks already struggling to replace income pinched by new regulations including a cap on debit-card "swipe" fees. Last year bank customers paid $31.6 billion in overdraft fees, down from $33.1 billion in 2010, according to Moebs Services, a Lake Bluff, Illinois-based research firm. About 15 million Americans overdraw their accounts 10 or more times a year, the firm said.
The bureau's examiners also are reviewing the banks' justifications for the size of overdraft fees, two of the people said. Large banks charge an average $35 per overdraft, compared with $25 at community banks and credit unions, Moebs reports.
When a customer who's enrolled in overdraft protection writes a check or makes a debit that puts an account into a negative balance, some banks approve the transaction but charge the flat fee along with interest on the amount advanced. People who don't enroll get overdrafts denied at the point of sale.
Policies vary from bank to bank, and may depend on whether a transaction involves a paper check, debit card or electronic transfer. For example, Citigroup Inc. and Bank of America don't allow overdrafts on debit-card purchases, which are simply denied if the customer's account doesn't have sufficient funds.
The consumer bureau's inquiry also encompasses regional banks including U.S. Bancorp, Regions Financial Corp., and PNC Financial Services Group Inc., said the people briefed, who spoke on condition of anonymity because the work isn't public.
The people didn't give the names of the rest of the nine banks under scrutiny. Spokesmen for JPMorgan, Bank of America, Wells Fargo, PNC, Regions and U.S. Bancorp declined to comment.