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Commentary: CFPB Study of Overdraft Programs

Commentary: CFPB Study of Overdraft Programs

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The Consumer Financial Protection Bureau (CFPB) released its initial analysis
of bank overdraft programs in a June 2013 white paper. We review the report and
provide commentary on its methodology, its preliminary conclusions, and gaps in
its analysis. We provide a synopsis of findings from previous third-party analyses to
lay the foundation for our response, and then we follow the paper’s organizational
structure as we discuss specific points it makes. We also identify the larger policy
questions of access to credit, alternative sources of credit, and the economic benefit
attained by the use of overdrafts. These questions must be addressed before the
bureau can make any findings of consumer harm that would justify new regulation
and the resultant unintended consequences of limiting options to the consumers the
CFPB is structured to protect.
The Consumer Financial Protection Bureau (CFPB) released its initial analysis
of bank overdraft programs in a June 2013 white paper. We review the report and
provide commentary on its methodology, its preliminary conclusions, and gaps in
its analysis. We provide a synopsis of findings from previous third-party analyses to
lay the foundation for our response, and then we follow the paper’s organizational
structure as we discuss specific points it makes. We also identify the larger policy
questions of access to credit, alternative sources of credit, and the economic benefit
attained by the use of overdrafts. These questions must be addressed before the
bureau can make any findings of consumer harm that would justify new regulation
and the resultant unintended consequences of limiting options to the consumers the
CFPB is structured to protect.

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03/18/2014

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COMMENTARY: CFPB STUDY OF OVERDRAFT PROGRAMSG. Michael Flores and Todd J. Zywicki
MERCATUS RESEARCH
Bridging the gap between academic ideas and real-world problems
 
Copyright © 2013 by G. Michael Flores and Todd J. Zywicki and the Mercatus Center at George Mason University Mercatus CenterGeorge Mason University 3351 Fairfax Drive, 4th floor Arlington, VA 22201-4433(703) 993-4930mercatus.org Release date: November 4, 2013
ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSITY
The Mercatus Center
at George Mason University is the world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real-world problems. A university-based research center, Mercatus advances knowledge about how markets work to improve people’s lives by training graduate students, conduct-ing research, and applying economics to offer solutions to society’s most pressing problems.Our mission is to generate knowledge and understanding of the institutions that affect the freedom to prosper and to find sustainable solutions that overcome the  barriers preventing individuals from living free, prosperous, and peaceful lives.Founded in 1980, the Mercatus Center is located on George Mason University’s  Arlington campus.www.mercatus.org 
 
ABOUT THE AUTHORS
G. Michael Flores
 is an economist who has studied financial services compa-nies and consumer credit in general for over 30 years, with a particular focus on “alternative” credit programs for the last 10 years. Since 1995 he has been actively involved in advising banks seeking to establish their overdraft programs. He has written and published research papers on consumer credit in the United States and the United Kingdom, as well as papers on payments, including general-purpose reloadable and payroll prepaid cards. Based on these studies, he has testified before several House and Senate subcommittees and spoken to industry groups. He has also authored articles for industry publications. He is a faculty member with Pacific Coast Banking School at the University of Washington in Seattle.
Todd J. Zywicki
 is George Mason University Foundation Professor of Law and a senior scholar with the Mercatus Center at George Mason University. He is the author of over 70 articles in law reviews and economics journals, including numer-ous articles on consumer credit and regulation—for example, “The Economics and Regulation of Bank Overdraft Protection” in
Washington and Lee Law Review
 (2012). He is also a coauthor of the forthcoming book
Consumer Credit and the  American Economy
 with Thomas A. Durkin, Gregory Elliehausen, and Michael Staten. From 2003 to 2004 he served as the director of the Office of Policy Planning at the Federal Trade Commission.

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