March, 2014

Overdraft Protection and Consumer Protection

A Critique of the CFPB's Analysis of Overdraft Programs
  • Todd Zywicki

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
  • Brian Deignan

  • G. Michael Flores

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In June 2013, the Consumer Financial Protection Bureau (CFPB) released a white paper containing its initial analysis of bank overdraft programs. The white paper contains gaps in its analysis and the bureau fails to identify the larger policy questions of access to credit, alternative sources of credit, and the economic benefit attained by the use of overdrafts. Failure on the CFPB's part to recognize the limits of its own analysis could lead to subsequent regulatory and enforcement actions that may be harmful to consumers and the economy. The white paper states that its investigation indicates that overdraft programs can be costly for the consumers who use them. The initial white paper from the CFPB demonstrates that the bureau needs to analyze overdraft protection and its substitutes, along with their respective benefits and costs, in a holistic manner in order to better foresee possible unintended consequences of future regulatory action.