Comment Letter CFPB Overdraft AARP

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                                                                                    601 E Street, NW         T   202-434-2277
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June 29, 2012

Office of the Executive Secretary
Bureau of Consumer Financial Protection Bureau
1500 Pennsylvania Ave. NW
(Attn: 1801 L Street NW)
Washington, DC 20220

        Re: Impacts of Overdraft Programs on Consumers
        AGENCY: Bureau of Consumer Financial Protection
        Docket No. CFP-2012-0007

AARP1 appreciates the opportunity to submit comments in response to the questions posed
regarding the Impacts of Overdraft Programs on Consumers, 77 F.R. 39 (Feb. 28, 2012).
Overdraft fees continue to be a significant drain on the income and assets of older consumers,
siphoning off billions of dollars a year, primarily from vulnerable low income people. 2 Older people,
including Social Security recipients, are particularly vulnerable to burdensome overdraft fees.3
AARP urges the Bureau of Consumer Financial Protection ("Bureau") to ensure that financial
institutions offer accounts that fairly and reasonably meet the needs of consumers and that they
improve efforts to inform consumers how to avoid overdraft fees. As technological advances

1AARPis a nonprofit, nonpartisan membership organization that helps people 50+ have independence,
choice, and control in ways that are beneficial and affordable to them and society as a whole. We produce
AARPThe Magazine, AARPBulletin, AARPViva, NRTALive and Learn, and provide information via our
website, AARPpublications reach more households than any other publication in the
United States. AARPadvocates for policies that enhance and protect the economic security of individuals.
2 See Martha C. White, We Paid Almost $30 Billion in Overdraft Fees in 2011, Time, Jan. 3, 2012,;       Leslie
Parrish, Overdraft Explosion: Bank fees for overdraft increase 35% in two years, Center for Responsible
Lending (October 6,2009), available at
analysis/crl-overdraft-explosion.pdf (showing that from 2004-2009, total overdraft fees assessedby banks
and credit unions exceeded $100 billion dollars); LisaJames& Peter Smith, Overdraft Loans: Survey finds
growing problem for consumers, Center for Responsible Lending, (April 24, 2006), available at
and Leslie Parrish, Consumers Want Informed Choice on Overdraft Fees and Banking Options, Center for
Responsible Lending, (April 16, 2008), available at
loans/ research-anaIysis/fi naI-caravan-survey-4-16-08.pdf.
3Leslie Parrish and Peter Smith, Shredded Security: Overdraft practices drain fees from older Americans,
Center for Responsible Lending (June 18, 2008), at 6, Table 1, available at          (older Americans aged 55 and over
pay $4.5 billion in total overdraft fees annually and $1.8 billion for debit card/ATM transactions alone.
Those who rely upon Social Security for at least ,one half oftheir income pay nearly $1 billion annually.).

                                                                                   Robert G. Romasco, President
          HEALTH / FINANCES / CONNECTING      / GIVING / ENJOYING                  Addison Barry Rand, Chief Executive Officer
change the speed and nature of payment systems, it is important the consumer protections keep
pace so that consumers are not unfairly disadvantaged.

In particular, AARP urges the Bureau to ensure that:

          •   Financial institutions make greater efforts to ensure consumers understand terms and
              conditions relating to their accounts, and overdraft fees in particular, by clearly disclosing
              the cost associated with overdraft protection;
          •   Lower cost account alternatives are made available to consumers who are regularly
              assessed overdraft fees, and;
          •   Consumers are provided opportunities to avoid transactions which will result in overdraft

     I.       Lower Cost Alternatives to Overdraft Protection Programs

AARP urges the Bureau to evaluate overdraft fees being assessed to consumers in the context of
overall account features, disclosures, and access to available alternatives. Historically, as the
Bureau recognizes, a relatively few consumers are assessed the vast majority of overdraft fees."
These consumers tend to have fewer assets and lower incomes." Research repeatedly has found
that overdraft fees have a disparate impact on lower income consumers and communities of color."
Although fewer people were assessed overdraft fees following the amendments to Regulation E,
effective July 2010, which require consumers to opt-in to overdraft protection, the amount charged

4   See 75 Fed. Reg. 22685 (DATE).

5See Lisa James & Peter Smith, Overdraft Loans: Survey finds growing problem for consumers, Center for
Responsible Lending, (Ap. 24, 2006), available at
http://www .responsi blelend ing.o rg/ overd raftloa ns/ resea rch-a na lysis/ip013-0ve rd raft _Survey-0406. pdf;
Leslie Parrish, Consumers Want Informed Choice on Overdraft Fees and Banking Options, Center for
Responsible Lending, (April 16, 2008), available at
loans/research-analysis/final-caravan-survey-4-16-08.pdf (finding that account holders who are repeatedly
charged abusive overdraft loan fees were more likely to be lower income, single, and non-white.) Similarly,
a 2009 survey commissioned by CFA found that while 13% of all adults reported an overdraft within the last
year, 18% of accountholders       with incomes of $25,000 and 26% of African Americans had incurred an
overdraft fee.

6 Consumer Federation of America's 2004 survey found that 45% of African Americans had experienced
overdrafts, compared to only 28% of consumers overall. CFA conducted another survey in July 2010, finding
that African Americans were twice as likely to have experienced an overdraft than consumers overall. In
2006 and 2008, the Center for Responsible Lending found that only 16% of people who overdraft pay 71%
of all overdraft fees, and those individuals are more likely than the general population to be lower income
and non-white. Leslie Parrish, Consumers Want Informed Choice on Overdraft Fees and Banking Options,
CRL Research Brief (Ap. 16, 2008), available at
per overdraft has increased.        Nearly $30 billion in overdraft fees were charged to a smaller group
of consumers in 2011?

While some consumers may desire to take advantage of overdraft "protection," they should have a
better understanding of what overdraft protection is and how much it costs. Low income
consumers should also have a choice from among account options that are designed to meet their
specific needs.

Financial institutions enable some consumers to avoid overdraft fees by linking to another account
or a credit card. This is not an available alternative for those consumers who do not have a
substantial financial cushion or present significant credit risk, however. Moreover, banks often
charge high monthly fees unless a consumer maintains a relatively high minimum balance, and
these fees are trending upward rapidly." For consumers who overdraft because they do not have a
sufficient financial cushion, having a separate linked account means trading off account fees for
overdraft fees. This is simply not an affordable alternative for them.

      A.   Financial Institutions should offer accounts that better meet the needs of lower
           income people

Financial institutions should offer accounts with appropriate features to meet the needs of those
consumers who overdraft most frequently. For example, banks should not charge for balance
inquiries and should not permit overdrafts without offering an opportunity for the consumer to
decline a transaction that will cause an overdratt."   AARP strongly supports the availability of
transactional accounts that offer free direct deposit, free automatic savings, low minimum opening
and monthly balance requirements, free cashing of US checks, access to electronic bill payment
and reasonably priced money orders.

7   See Martha C. White, We Paid Almost $30 Billion in Overdraft Fees in 2011, supra n.2 (noting "[a]fter five
years during which the median charge was $25, it's inched up since then. In 2011, the median overdraft fee
was $29.").

8 See e.g., Sun Trust To Raise Minimum Balance, Overdraft Fees On Everyday Checking Accounts, Huffington
Post, (June 6, 2012) available at
fees_n_1574152.html      (accessed June 21, 2012) (liThe changes, scheduled to begin Aug. 24, will raise the
minimum daily balance a customer is required to keep in an Everyday Checking account, from $500 to
$1,500, to avoid a $7 monthly service fee. Holders of those accounts will also pay more in overdraft fees:
they'll fork out $36 per overdraft across the board, instead of $25 for the first one and $36 for subsequent
items. Everyday Checking account holders will also lose the perk of being allowed one overdraft a year
without a fine. Customers with other accounts, including Student Checking and Solid Choice Checking ones,
will lose another benefit: ATM fee reimbursements for transactions at non-SunTrust Banks ... SunTrust is
hardly the only bank this year to make major changes to its fee structure. Wells Fargo has said it is
completely phasing out free checking this summer. U.s. Bank said in May that it will hike overdrafts fees to
$35 from $33. In April, the cost for a checking account at Citizens Bank doubled.").

9There are limited circumstances in which it will be impossible for a bank to know that an overdraft will
occur, such as when a check written on an account clears after a debit transaction has been approved, or
when a hold is placed on funds.
     Many lower income people remain unbanked or underbanked."          This includes, according to
     Treasury, approximately 2.1 million who receive Social Security and 1.8 million who receive SSI
     and do not have bank accounts." As a result, they do not have access to the benefits of the
     banking system, including: the safety of holding their funds in an insured institution; the ability to
     avoid high cost check cashing fees; the option to receive their tax returns, wages, or Social
     Security and other federal benefits quickly though direct deposit; the option to make payments
     electronically; the protections of the Electronic Fund Transfer Act for liability limits on debit
     transactions, dispute rights, and control over making payments electronically.

     Despite the benefits of participating in mainstream financial institutions, some people deeply
     distrust banks and choose to remain unbanked or underbanked."           The high cost of hidden or
     misunderstood account and overdraft fees are a significant contributing factor that keeps people
     out of the financial mainstream and drives them to use higher priced alternative financial services
     products." Indeed, the cost of overdraft fees have been compared unfavorably to other high cost
     short term loans such as payday lending and auto title loans." Overdraft fees are considered by
     many consumers to be unpredictable and difficult to understand.

     10Reaching Underbanked and Unbanked Consumers in 2012: Strategies for Connecting with Mobile
     Financial Services, Javelin Strategy and Research, 6 (June 2012), available at          _ReachingUnderbankedandUnbanked
     Consumersin2012Brochure.pdf        (accessed June 21, 2012) r'The underbanked in the u.s. are estimated to
     total 35 million adults, comprising 15% of the population. Included in that number are 10 million unbanked
     u.S. consumers, 4.3% of all adult consumers.");

     11   Management   of Federal Agency Disbursements,   75 F.R. 34394 (June 17,2010).

     12   UNBANKED BY CHOICE: A look at how low-income Los Angeles households manage the money they earn,
     Pew Charitable Trusts (July 2010); A Study of the Unbanked & Underbanked Consumer in the Tenth Federal
     Reserve District, Federal Reserve Bank of Kansas City (May 2010).
1.   13See 2009 Fed. Dep. Ins. Corp., FDIC National Survey of Unbanked and Underbanked Households 25,    (finding that of those who are unbanked but were
     previously banked, nearly one-third (31.4%) closed their account because of the costs of maintaining it (i.e.,
     minimum balance requirement, service charges, overdrafts); Julia S. Cheney, Federal Reserve Bank of
     Philadelphia, Payments, Credit, and Savings: The Experience for LMI Households, 11 (May 21-22, 2007)
     available at
     center/events/conferences/2007   /C2007MayExperienceforLMl.pdf      (of the unbanked consumers in the
     2005-2006 Detroit Area Study, 70 percent had previously had a bank account and the top reasons cited for
     closing the account included moving, high fees/ and insufficient funds); Ann McLarty Jackson, A Portrait of
     Older Underbanked and Unbanked Consumers: Findings From a national Survey (Washington DC, 2010), 29
     (cost related factors most often given as reasons for not having a checking or savings account) available at
     assets. aarp. org/rgcenter/ppi/econ-sec/fs   198-economic. pdf

     14 See John Caskey, Payday Lending: New Research and the Big Question, Fed. Res. Bank of Phil., Working
     Paper 10-32 (Oct. 2010) (comparing the cost of overdraft fees to those of a single payday loan); loan See
     also Michael S. Barr, Jane K. Dokko, and Benjamin J. Keys/ And Banking for All?, 18, Federal Reserve Board,
     2009-34, available at          (accessed
Some banks have also been accused of unfairly increasing overdraft fees charged to consumers
by manipulating the orderinq of transactions so that the largest transactions will clear first, causing
a cascading of fees for each subsequent transaction that clears." Recently, settlements of
lawsuits challenging such practices as unfair and deceptive have returned approximately one
billion dollars to consumers." Additionally, the disproportionate assessment of overdraft fees
against people of color may raise significant fair lending concerns under the Equal Credit
Opportunity Act.17

       B.   Consumers need assistance to understand banking practices to enable them to
            avoid overdrafts.

The Bureau should evaluate whether bank practices that permit continuing overdrafts from
accounts that are chronically overdrawn may present risks to the bank as well as to the consumer.
The problem of overdrafts and other fees is not merely one that impacts the consumers against
whom the charges are assessed. Assuming an average overdraft fee of $30 and fees assessed
totaling $30 billion, banks are covering approximately one billion overdrafts per year." That is,
every year banks are honoring billions of dollars worth of debits for which they have no guarantee
of repayment."

Additionally, a recent report indicates that due to consumer dissatisfaction with financial
institutions, primarily related to fees, "about 11 % of consumers surveyed in March 2012 indicate
they are at risk of switching primary financial institutions in the coming year, putting $675 billion in

Aug. 15, 2010) (low and moderate income unbanked people may spend only one percent of their income
for financial services, much less than previously thought, and less than higher income or banked individuals

 A Study of the Un banked & Underbanked Cansumer in the Tenth Federal Reserve District, Federal Reserve

Bank of Kansas City (May 2010).

16 In February, 2012, JPMorgan Chase announced a settlement    of overdraft fee case for $110 million. A
Court approved a settlement of $410 million in overdraft fee lawsuit suit against Bank of America. In
August, 2010, a federal judge ordered Wells Fargo to cease reordering checks and to return $203 million
to consumers.

17"Reverse redlining" -- targeting unfair, predatory or abusive products with a disparate impact on
protected classes -- has been recognized as a fair lending violation in both the housing and auto lending
contexts. 15 U.S.c. Sec. 1691 See, e.g. Hargraves v. Capital City Martgage Corp., 140 F. Supp. 2d 7

(0.0.c. 2000), on reconsideration 147 F. Supp. 2d 1 (0.0.c. 2001); McGlawn v. Pennsylvania Human
Relations Comm'n, 891 A.2d 757 (Pa. Commw. Ct. 2006). For a discussion of the auto lending cases, see
generally National Consumer Law Center, Credit Discrimination 8.5 (5th Ed. 2009). Overdrafts, as banking
regulators have recognized, are extensions of credit, even though the associated fee has been excluded
from TIL's definition of a "finance charge" by Board rule. See "Joint Guidance on Overdraft Programs,"
(February 18, 2005), at

18   See Martha C. White, We Paid Almost $30 Billion in Overdraft Fees in 2011, supra n.2.

19 The actual amount a bank covers depends on the size of the overdraft.    If the average overdraft   is $100
the amount covered by the bank is $100 billion.
deposits [and $92 million in fee revenue] at risk.'o2O
                                                     Such high percentages of consumers
expressing a desire to change banks due to undisclosed fees is a strong indication that consumers
need a better understanding of the fees they are charged and greater opportunities to avoid being
assessed extra charges where possible.

First, consumers should be given the right comparison tools, so they can pick among options that
are most appropriate for them based on their usage and resources, such as an overdraft line of
credit, a link to a savings account or credit card, a switch to a different type of account or to
another payment method such as a prepaid card or mobile banking. Additionally, the Federal
Reserve Board should mandate a special APR disclosure for overdraft loans to enable consumers
to compare overdraft loans with the cost of other credit transactions available to them. It should be
a close-end APR in order to show the short periods of time that there is overdraft credit
outstanding."     Such a disclosure should be included in monthly statements for every month during
which an overdraft fee is charged. Also, sample APRs and typical yearly costs based on a sample
range of yearly overdrafts should be disclosed at the time a consumer is asked to opt into an
overdraft protection program.

Additionally, to help reduce overdraft fees and consumer dissatisfaction that puts banks at risk,
financial institutions should prepare more informative educational materials for their customers.
Banks should explain clearly what the fee schedule for an overdraft is compared to the cost of
avoiding overdraft protection and having a particular type of transition declined. Considering the
costs to decline a debit transaction compared to declining payment of a check, it is reasonable to
require institutions to differentiate between the cost of overdraft protection depending on the
circumstances."      For example, a consumer can avoid an overdraft or the imposition of any fee if
she avoids making a point of sale purchase that will result in an overdraft. Conversely, if a check
is unpaid, the consumer may face imposition of both insufficient fund fees and payee imposed
returned check fees, as well as late fees and penalty interest rates. Consumers should have the
option to decline a debit overdraft but accept overdraft protection for a check, if that is their

20 BANK SWITCHING IN 2012: Giant Banks Remain Highly Vulnerable as Customers Weigh Fees and
Convenience, Javelin Strategy and Research, brochure at 7 (June 2012), available at    (noting "Citibank and Bank of America are the most
vulnerable giant banks by far, with as many as one in four customers at risk of switching.").

21   This overdraft APR should be calculated as follows: The amount of the fee divided by the amount of the
overdraft;   divided by the number of days between when the overdraft occurred and when it was repaid;
multiplied   by 365 days; expressed as a percentage.

22See Eric Halperin, Lisa James, and Peter Smith, Debit Card Danger: Banks offer little warning and few
choices as customers pay a high price for debit card overdrafts, Center for Responsible Lending, at 24 (Jan.
25,2007), available at      See also
FDIC Study of Bank Overdraft Programs (NOV. 2008) (finding 41 percent of NSF-related transactions        were
triggered by point-ofsale/debit and another 7.8 percent by ATM transactions).

23Jeff Gelles, Pew study: Overdraft fees still take account-holders by surprise, Inquirer, May 9,2012,
coverage (finding that over half ofthe   people penalized with overdraft fees in debit card purchases and
Most importantly, financial institutions should do more to educate consumers on how to avoid
overdrafts altogether. Consumers need guidance to help them understand the impact on available
balances when they write a check, and how that differs from using a debit card at a gasoline pump.
Consumers most at risk for being charged high fees have relatively low levels of financial literacy."
Low literacy consumers often lack the analytical skills to even calculate their bank balances to
avoid overdraft fees in the first place." Considering that it can be difficult for the banks to predict
an overdraft is likely as a result of account holds or other circumstances, it is not surprising that
consumers may also have difficulty understanding their risk for overdraft fees.

Ideally, materials should be provided to consumers both in advance of incurring a fee, such as at
account opening, and at the time an overdraft occurs, to take advantage of having the customer's
attention focused on the problem." Additionally, financial institutions should consider whether
there are banking products offered that would be less expensive for them based upon their usage,
and to make recommendations of such alternatives to help consumers avoid chronic overdraft and
other avoidable monthly account fees assessment.

The rapidly changing nature of financial institutions also makes greater consumer education
essential. Technological advances have significantly changed the banking industry in a very short
span of years. Cash and paper checks are no longer the primary payment methods. 27 Electronic

ATM withdrawals did not know they had opted into such a program and 75% would have preferred the
transaction to be declined).

24   For example, 82% of the adults who have "below basic" prose literacy skills have household incomes of
less than $40,000. Sheida White, et aI., National Center for Education Statistics, Literacy in Everyday Life:
Results from the 2003 National Assessment of Adult Literacy, April 2007, at 32. (With two minor exceptions
"[a]verage prose, document, and quantitative literacy was higher for adults in each increasing level of
household income").

2S Madhubalan Viswanathan, Jose Antonio Rosa, and Julie A. Ruth, Emerging Lessons: For Multinational
Companies, Understanding the Needs of Poorer Consumers Can Be Profitable and Socially Responsible, Wall
St. J. Online, October 20, 2008,

26 See Victor Stango and Jonathan Zinman, Limited And Varying Consumer Attention: Evidence From Shocks
To The Salience Of Bank Overdraft Fees, Fed. Res. Bank of Phil., Working Paper No. 11-17 (Ap. 2011). In its
2008 Regulation DD Proposal, the Board states, "[C]onsumers may not focus on the significance of the
information at account opening because they may assume they will not overdraw the account," noting that
this behavior is referred to as "hyperbolic discounting." 73 Fed. Reg. 28743 (May 19, 2008). In general, it is
found that many consumers do not read notices. A recent study has found that 27%-97% of consumers did
not read contracts completely. This study also found that low-income and lower socio-economic status
consumers were even less likely to do so. Debra Pogrund Stark and Jessica M. Choplin, A license to Deceive:
Enforcing Contractual Myths Despite Consumer Psychological Realities, NYU Journal of Law & Business, at
29-30 (Spring 2009).

27See RETAIL POINT OF SALE FORECAST2012-2017: Cash is No Longer King; Cards and Mobile Payments
Likely to Rise, Javelin Strategy and Research (June 2012) (finding "[c]ash is no longer king at the point of
sale (POS); the total purchase volumes for traditional card products have surpassed those for a" other
options. Debit dominates and is used in close to a third of a" in-store purchases. Credit follows with a
fractionally   lower share at POS than is held by debit.").
debits and prepaid cards now dominate the market. 28 Millions of Social Security beneficiaries who
currently receive paper checks will soon be required to receive their benefits electronically, and
new beneficiaries are already required to do SO.29 The development of entirely new mobile
payment systems are on the horizon."

For those consumers who cut their financial teeth using checks and cash, particularly the oldest
consumers, the rapidly changing technological environment may be contributing to the imposition
of unnecessary fees and public perception that financial institutions are treating their customers
unfairly."  Whereas only a few years ago, a person might have been be able to rely on a float
period before a check they had written was cashed and money was actually withdrawn from the
account, that float has been essentially eliminated. The electronic clearing of transactions has
reduced the median amount of money floated each day - that is, the amount of money being
processed at any given time - from $8.8 billion in 2001 to less than $400 million each day in
2008.32 The Bureau should evaluate the extent to which lack of understanding of various
technological enhancements to payment systems may be contributing to the imposition of
unnecessary overdraft fees.

Moreover, while the changing legal environment provides consumers with significantly improved
consumer protection, it also contributes to consumer confusion. Banks are changing account
features, eliminating free checking, sending notices to implement changes to overdraft protection,
and seeking to impose new fees for a variety of once-free practices, such as debit card use and
the return of cancelled checks.

Regardless of the sometimes-disputed merits of such account changes, the rapidly changing
regulatory framework and corresponding adjustments to accounts and fee structures is very

28   1d.
29   See 75 Fed. Reg. 80315 (Dec. 10, 2010).

30See Reaching Underbanked and Unbanked Consumers in 2012: Strategies for Connecting with Mobile
Financial Services, Javelin Strategy and Research (June 2012), available at      e n/ Javelin-Study-Fi nds-Prepaid-Cards-Lure-
Underbanked (finding "[tjhe underbanked population - those without a checking account and often
without a primary financial institution relationship - relies upon the mobile phone to engage in robust
mobile transacting. This propensity makes the "mobile underbanked" a prime target for mobile banking,
mobile prepaid, and mobile money P2P transfer solutions. Emerging vendors are leveraging the
underbanked's consumer profile to provide transfer solutions, while recent government        regulations have
made this segment both less profitable and more crucial to [financial institutions].").

31 See BANK SWITCHING IN 2012: Giant Banks Remain Highly Vulnerable as Customers Weigh Fees and
Convenience, Javelin Strategy and Research, brochure at 7 (June 2012), available at        (noting "Consumers who switched FI [(Ufinancial
institutions")] in the previous 12 months typically cited high fees (33%), unsatisfactory service (21%), the
desire for a local bank (15%), and the need to move to a new area (12%). But consumers who remained
with their primary FI typically cited convenient locations (42%), satisfactory online services (40%), and
access to ATMs (25%). About 31% also noted that their FI does not charge excessive fees.").

32   See Martha C. White, We Paid Almost $30 Billion in-Overdraft Fees in 2011, supra n.2.
confusing to consumers. For older consumers, many of whom who have diminished financial
decision-making capacity, the confusion-and  consequences-are much more profound."

Most disclosures are neither clear nor drafted to enable consumers to understand them."
Financial institutions should provide disclosures to consumers regarding the terms and conditions
of the account that are clear and understandable. Materials conveying the legal rights of
consumers should not be designed to denigrate or discourage the assertion of such rights.
Important account information should be delivered independently of marketing and public relations

Specifically with regard to overdraft fees, the marketing of overdraft protection has been
questioned as unfairly targeting precisely the low income consumers who pay the highest level of
overdraft charges, allegedly to ensure a continued revenue stream from them. A recent report
indicates that the "people who have a history of overdrawing their accounts-folks     who have paid
more than 10 overdraft fees a year-and who therefore are most likely to continue overdrawing
their accounts, are the ones who are most likely to have opted in for overdraft protection after the
reforms took place. So far, 98% of these customers have signed up for the service.':"

The Bureau should evaluate marketing practices of financial institutions as part of its supervisory
functions to ensure that efforts to offer overdraft feature to consumers were not and are not being
carried out in a deceptive or discriminatory manner. The Bureau should also evaluate whether
older people have been targeted unfairly by the use of fear-based marketing, to which older people
are particularly susceptible because they are significantly more averse to risk of loss than other
age groups.36

33See Naomi Karp, T. Ryan Wilson, Protecting Older Investors: The Challenge of Diminished Capacity, 11,
AARP Public Policy Institute (Nov. 2011) (finding that "[w]ith age, adults experience       substantial diminution
in cognitive function that affects financial decision making. Evidence indicates that,      after peaking in middle
age, the ability to make effective financial decisions declines"); Agarwal. 5., Driscoll,   J, Gabaix, X., and
Laibson, D. The age of reason: Financial decisions over the life-cycle and implications      for regulation, 2,
Brookings Papers on Economic Activity, 51-117 (2009).

34See Susan Weinstock, Time to Stop Arguing About Disclosure Reform, American Banker, Dec. 1, 2011,       (In a study done by the Pew Safe
Checking Project, it was found that the median length of disclosure documents was 111 pages).

35 See Martha C. White, We Paid Almost $30 Billion in Overdraft Fees in 2011, supra n.2 (describing Moebs

survey of overdraft fees)

36 See Nevin E. Adams, Annuities Get A Behavioral Finance Makeover, Asset Int'I, Inc. (May 17, 2010),

available at
(describing hyper-risk aversion among older consumers); Annamaria Lusardi, Olivia S. Mitchell, and Vilsa
Curto, Financial Literacy and Financial Sophistication Among Older Americans, Nat'l Bur. of Econ. Res.,
Working Paper No. 15469 (Dec. 2009), available at
      II.   Technological advances that may assist consumers to avoid overdrafts must not be
            the only option available to inform and protect against incurring overdraft fees

The Bureau correctly postulates that technological advances may help consumers avoid
unnecessary overdraft fees. Point of sale transactions can notify a consumer of insufficient funds
and provide an opportunity to decline a transaction to avoid a fee. Account balances may be sent
via text messaging or email alerts. Mobile apps may help consumers track income and
expenditures to enable better budgeting and account balancing.

While it is possible that technology will help some consumers to avoid some overdraft fees by
alerting them to low balances, not everyone is in a position to take advantage of it to the same
extent. While "[t]he growth of the e-commerce and mobile markets has added to the value
proposition of prepaid for underserved consumer segments" there is a recognition that such e-
commerce and new mobile services are "generating high value for young and underbanked
prepaid users who commonly have access to mobile devices, including smartphones."
Unfortunately, not everyone has access to electronic account information, and older people are not
considered to generate the same "value proposition" in this regard. For example, a Federal
Reserve Board study found that the older a checking account holder, the less likely they are to use
a debit card."

As technological solutions are formulated, AARP urges the Bureau to protect older and lower
income people who remain on the far side of the digital divide. Large numbers of older people do
not have access to broadband or mobile internet services or have not yet become comfortable
relying upon such technoloqies." Additionally, financial institutions must not be permitted to
charge consumers who do not have access to or choose not to use electronic only notification or
account statement to be charged for paper statements and notifications. Finally, because of the
high potential for identity theft and unauthorized access to accounts, as we" as the ability of a
caretaker or family member to erase text messages to hide evidence of their unauthorized
activities, it is essential that text messaging not be the sole or even primary means to provide
account information to consumers.

     III.   Bank Offsets against exempt federal benefits to recover overdraft fees must be

Related to the significant problem of overdraft fees charged is the issue of set off to collect
overdraft fees from the next deposit made to the account. Most account agreements include terms
permitting seizure of funds in the account for debts owed to the financial institution, even if the
funds are exempt from garnishment. The practice of offsetting overdraft fees can dramatically
reduce, or wipe out entirely, an individual's exempt benefits.

37    See Ron Borzekowski, Elizabeth K. Kiser, and Shaista Ahmed, Consumers' Use of Debit Cards: Patterns,
Preferences, and Price Responses. Federal Reserve Board (Ap. 2006).

38     Digital differences   041312.pdf
AARP supports prohibiting setoffs against exempt funds for all types of fees, consistent with a
number of cases that have held it is not legal for financial institutions to seize exempt funds."
Unfortunately, some case law to the contrary permits such offset. AARP urges the Bureau to
provide beneficiaries of exempt federal funds greater protection from offset of overdraft charges.

AARP supports the FDIC guidance to significantly reduce overdrafts and better protect consumers
from practices of banks which have inflated the fees they are forced to pay." This guidance does
not extend to institutions regulated by other agencies, however, so its scope is insufficient to
protect many federal beneficiaries who use banks. Moreover, while implementation of the CARD
Act may reduce the frequency and amount of such overdraft charges, it permits financial
institutions to continue charging overdraft fees consistent with Regulation Z after following notice
procedures. Neither the CARD Act nor Regulations Z specifically protects exempt funds.

Such offsets should not be permitted against exempt funds. Although the exempt funds are
constitutionally protected from seizure without due process, financial institutions routinely seize
them without following any due process procedures. Unlike any other creditor, the financial
institution has unfettered and unlimited access to the exempt funds. The Congressional intent to
protect certain federal benefits from seizure by creditors should not be ignored simply because the
creditor happens to be the financial institution. Indeed, especially because exempt federal funds
must be directly electronically deposited to a financial institution, the exemption requires even
greater protection.


AARP appreciates the opportunity to provide input to protect older and low income consumers from
excessive and unnecessary overdraft fees. If you have any questions, please feel free to contact
Cristina Martin-Firvida at 202-434-6194.


David Certner
Legislative Counsel and Legislative Policy Director
Government Affairs

39 See Tom v. First Am. Credit Union, 151 F.3d 1289 (10th Cir. 1998) (noting that there is no
relevant difference between set-off and garnishment and prohibiting set-off against exempt funds);
Hambrick v. First Security Bank, 336 F. Supp. 2d 890 (E.D. Ark. 2004) (Social Security's anti-
assignment provision prohibited application of bank's set-off provisions in bank customer's
agreements with bank); Marengo v. First Massachusetts Bank, N.A., 152 F. Supp. 2d 92, (D. Mass.
2001) (Bank's set-off against Social Security funds violated Social Security Act); In re Brewer, 2002
WL 32917680, (Bankr. S.D. ilL, Aug. 15,2002) (42 U.S.C. § 407(a) prohibits Credit Union from
taking Debtor's Social Security funds regardless of the prior agreement of the Debtors that the
subject funds would act as collateral for their loans from the Credit Union).
40 FDIC Overdraft Payment Programs and Consumer Protections, Financial Institution Letter, FIL-

47-2010 (August 11, 2010).

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