It’s hard to overstate how much bank customers hate overdraft fees, but we still shelled out nearly $30 billion on them last year. The Federal Reserve attempted to rein in the “gotcha” factor with new rules in 2010, but banks have exploited loopholes in them and increased the fees. Now, the Consumer Financial Protection Bureau is trying to finish what the Fed started.
“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” CFPB director Richard Cordray said in a statement announcing an inquiry into overdraft fees. The CFPB is beginning to target consumer and watchdog groups’ main gripes about the current overdraft status quo and the limits to the Fed restrictions. It’s going to look into whether or not banks use sneaky, deliberately confusing verbiage in their marketing, and if they process transactions by dollar amount rather than chronologically, which maximizes the number of times they can smack customers with an overdraft fee.
The CFPB is also suspicious of banks’ transparency when it comes to overdraft fees. It wants to find out just how clearly banks explain how to avoid those fees and how readily they volunteer information about less expensive options. To that end, the agency is soliciting comments on a proposed “penalty fee box,” described as “a disclosure on a consumer’s checking account statement that would highlight the amount overdrawn and total overdraft fees charged,” and launching a consumer education campaign to help people understand the overdraft details they might not be getting from their bank.
“We found consumers are confused about what overdraft opt-in programs do,” says Susan Weinstock, director of the Safe Checking Project at the Pew Charitable Trusts. “To make sure consumers understand whether or not they’ve opted in is really important.”
In addition, based on research showing that just 9% of checking account customers generate 84% of the $30 billion banks earned in overdraft fees last year, the CFPB is also seeking to determine why and to what extent young and low-income Americans are disproportionately burdened by overdraft fees.