CFPB: Opting for Overdraft Protection Means Higher Fees

Bank fees
Alamy
By MARCY GORDON

WASHINGTON -- A U.S. agency says consumers who opt for overdraft coverage on their checking accounts pay higher fees and are more likely to have their accounts closed than those who decline it.

A report by the Consumer Financial Protection Bureau released Tuesday says it's hard for consumers to anticipate and avoid overdraft charges. It found that the cost for "opting in" for overdraft coverage varies widely from one bank to the next.

Customers of some banks paid average charges of $298 annually, while those at others paid $147.

The CFPB has been investigating overdraft fees, which are a major source of banks' revenue. The agency has said its examination could result in new rules.

Banks charge overdraft fees when customers try to spend more money than they have in an account.

Banks will allow the transaction and then charge the customer a penalty of as much as $35.


Consumer advocates say overdraft fees hurt the people who can least afford them because poorer customers are more likely to drain their checking accounts to close to zero.

In 2010, the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card or ATM transactions. Banks must obtain a customer's consent, or "opt-in." Without overdraft protection, a transaction is declined if the customer can't cover it. The rule didn't apply to checks, online bill payments or recurring debits, such as a monthly cable bill. It also didn't limit how much banks can charge for the overdraft service.

Banks have responded by marketing overdraft protection aggressively.

Negative account balances can lead to involuntary closures of accounts, which can leave a black mark on a consumer's record and make it hard to open a new account, the report noted. It found that involuntary closure rates at some banks were over 2.5 times higher for customers who had opted for debit and ATM overdraft coverage.

The overdraft fees are complicated, the report said, varying among banks with regard to the number of overdrafts that can be incurred in a single day, for example. The maximum amount that a bank is willing to advance to a customer as protection can vary widely based on many factors.

The order in which check, debit card and other transactions are posted to an account can affect the number of overdraft fees, and the report found widely varying posting practices among banks.


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demcoverup

More cover ups coming out today about the Obama administration. And the lies keep on coming!!!!!!!

June 11 2013 at 2:12 PM Report abuse rate up rate down Reply
h.hughjardon

OY VEY.....it's not hard to avoid overdrafts. Just keep track of your shlt. Check book registers still apply in an electronic world. At some time people gotta take responsibility for their lives.

Environmental and administrative controls will only take you so far. At some time you just gotta pull your head out of your a$$.

June 11 2013 at 12:14 PM Report abuse rate up rate down Reply