Overdraft Fee Crackdown Being Considered By Consumer Financial Protection Bureau

By Dave Clarke

WASHINGTON, Feb 21 (Reuters) - The new U.S. Consumer Financial Protection Bureau is weighing a crackdown on checking account overdraft fees charged by banks, saying the charges can "inflict serious economic harm" on consumers.

The agency said on Wednesday that it will begin collecting information to determine if banks are manipulating the system to goose fees and whether they are making it clear to customers how they can incur overdraft charges.

Consumer advocate groups have complained that bank customers can get hit with multiple $35 charges because they accidentally overdrew their account with small purchases such as a cup of coffee.

The fees have brought in about $30 billion in annual revenue for the banking industry over the past few years.

Overdraft fees have been a source of tension between regulators and banks in recent years, and the CFPB's announcement follows steps taken by other regulators, including the Federal Reserve and Federal Deposit Insurance Corp, in response to complaints.

The Fed cracked down on the practice by banning overdraft fees on automated-teller-machine and debit-card transactions unless consumers have actively selected an overdraft protection service.

Those rules went into effect in July 2010 but did not include credit cards, checks or online bill payments.

Also in 2010 the FDIC issued guidance to banks to ensure excessive fees are not being charged.

The CFPB said that it wants to build on this work and will use the information to determine if additional steps are needed.

"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. "We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

The agency said it will seek information directly from large banks, though it did not name the institutions, and is also putting out a request for input from the public.

The agency said one area it will focus on is whether banks at the end of each day are processing large transactions first so that they can then charge a customer more overdraft fees for each subsequent smaller bill payment, check or ATM withdrawal.

The FDIC also focused on this issue in its 2010 guidance.

The amount of overdraft fees collected by banks has fallen in recent years.

The fees totalled $37.1 billion in 2009 and are estimated to have fallen about 20 percent to $29.5 billion in 2011, according to the research firm Moebs Services.

The information collection effort also focuses on whether consumers are being given enough information to understand and anticipate the overdraft fees they are being charged.

The agency said it will seek feedback on a sample "penalty fee box" that could be included in a checking account statement detailing the amount that has been overdrawn and what fees have been charged.

The bureau was created by the 2010 Dodd-Frank financial oversight law and is charged with overseeing consumer financial products, such as credit cards and mortgages.

Comments

[Jay Gould]

04:49 PM on 02/24/2012

There is a difference between overdraft protection on check and bill payments and the one on card transactions. A missed bill payment can do real damages, such as a penalty or some other adverse action. On the other hand, a declined card transaction would only prompt the cardholder to use another card or cash for payment. The point is that, if only one of these protections would have to be made optional, that should be the one on card transactions, which is in fact the case.

Still, I don't think that banks should force their overdraft protection on check and online bill transactions on us, but the right thing should be to let consumers decide whether to opt into it or not. However, if you do opt in, you should be prepared to pay for it, because an overdraft is, after all, spending someone else's money and that has never been free. For a closer analysis: http://blog.unibulmerchantservices.com/the-cfpb-penalty-boxes-highlighting-and-the-issue-with-overdraft-fees

[LSP]

04:42 PM on 02/24/2012

Conservative trolls have been all over this, slamming anyone posting a comment about having to pay outrageous overdraft fees as if they're lazy, jobless freeloaders and losers who can't even make enough money to keep a bank account from being overdrawn.

It's the same superior, smug attitude we see all the time. If you don't have enough money, you're a worthless scourge on society, and it's nobody's fault but your own.

[Oscar Shepard]

07:59 AM on 02/23/2012

They could do something as simple as regulating that all banks process transactions in chronological order rather than largest to smallest so they ensure maximum fees!

[Wonder Woman2]

06:46 PM on 02/22/2012

Does it really cost a bank $50 for an overdraft or is it simply a moneymaking area.

[RobVukovic]

05:16 PM on 02/22/2012

The banks rake in from $20-30 billion in overdraft charges annually. They take in similar amounts from ATM fees. Add to that all of the other penalties and fees and were talking real money. Draining their customers meager bank accounts at will does nothing to create jobs, just the opposite. If working class Americans were able to hold on to this cash they would surely spend it where it's needed most, at small businesses. We all know that it's small businesses that create the most jobs and they will add more employees as demand for their goods and/or services increases.

[Philclock]

04:31 PM on 02/22/2012

Soon EVERYTHING will be a regulated "fee", including babysitting.

Political Cronyism, a regulator in every bedroom, the Democratic Party's nirvana.

[DANIELISTICALL]

04:13 PM on 02/22/2012

The financial industry has spent large sums of money to try to water down the implementation of the Dodd-Frank Act. Many major banks, including Goldman Sachs, JPMorgan Chase, and Bank of America, have lobbied Congress to grant exceptions to trading derivatives abroad. Financial institutions spent more than $150 million on lobbying for the second year in a row in 2011, as their focus shifted from Congress to the regulators themselves.

[Jen Celli]

04:06 PM on 02/22/2012

Why do banks insist on holding the deposit of a bank check or money order for three days? Those funds are guaranteed and clear and should be immediately credited to the account, not held for three to five working days. Then if you have a direct deposit on top of those, they'll freeze that too; but they are sure ready to take out payments and overdraft your account while they hold your money. It's just a racket.

[freegeg]

04:27 PM on 02/22/2012

There is nothing "guaranteed" about a check or money order. People write bad checks all the time. The bank withholds the funds until the check clears. Meaning, until the bank gets paid.

[bipolarbears60]

04:50 PM on 02/22/2012

I am not aware there is a huge problem of bank checks bouncing. How is a money order not guaranteed?

[DannyMcDance]

11:07 AM on 02/23/2012

Checks don't clear instantly. The check is physically routed to a Federal Reserve clearing house before the bank sees that money, the process takes a couple of days.

[pistol13]

04:01 PM on 02/22/2012

I don't have a whole lot of sympathy here. It's just another example of the "not my fault" that plagues this country( It's not my fault I'm fat. It's not my fault I smoke and got lung cancer. It's not my fault I got arrested for drunk driving.) It is not difficult at all to know what is in your checking account. Don't write check you can't cover. You know, whenyou look in your wallet and there is no money you don't spend it.

[PunKinPai]

04:15 PM on 02/22/2012

Just guessing, but I suspect you don't have a whole lot of sympathy for anyone.

[pistol13]

04:41 PM on 02/22/2012

Not for anyone who keeps repeating the same mistake. But plenty who have lost jobs and homes,THEY ORIGINALLY COULD AFFORD, through no fault of their own or for those left behind when a loved one dies or the soldiers that have been maimed and wounded, or for those who lost everything from the tornadoes Tuscaloosa and floods in New Orleans. "Don't do the crime if you can't pay ther time". I've made my mistakes, but never once did I not take responsibiliy for them and I did not complain about the consequences.

[DannyMcDance]

11:08 AM on 02/23/2012

Why would you have sympathy for someone who can't follow basic 3rd grade rules? Don't spend money you don't have. Keep track of the balance in your checking account. It is not difficult. Should I have sympathy for someone who can't stop repeatedly bashing themselves in the head with a hammer?

[pavementends42]

04:00 PM on 02/22/2012

Good. If you use money that's in your account and a check 'posts' and appears retroactively on the date it 'clears', you shouldn't be charged $35 for every subsequent transaction. That's intentional and it's 'bank policy' so no one can do anything about it. It's just another hidden fee. Capital One does that. Infuriating.

[Payd Troll]

03:20 PM on 02/22/2012

the trills here deal in all ca$h. banks don't need their pennies.

[LSP]

03:14 PM on 02/22/2012

What really irks me is the fact that it takes a week or longer to receive a notice in the mail that your account is overdrawn. By the time you get the first one, you've already incurred another five days of overdraft charges. It's a racket.

If they wanted to, they could set up automated telephone alerts as soon as your account becomes overdrawn. Or, at the least, send an automated email. They won't. So they should be required to.

[mdsman]

03:16 PM on 02/22/2012

Or you could learn to balance your book and only spend money you have.
Bouncing a check is no bodies fault but yours

[LSP]

03:25 PM on 02/22/2012

Most everyone has made at least one mistake with their checking account at one time or another. It must be great to be perfect.

[lofttypeofaview]

03:28 PM on 02/22/2012

Banks are notorious for charging an automatic payment several days before it is actually supposed to be paid and they purposely do it when the customer doesn't have enough funds in their account to cover the amount, so that they can tack on an overdraft charge. Another problem is that if you make a purchase, sometimes you will be charged twice and can unknowingly overdraft until the pending charge is taken off.

[savantpm]

03:19 PM on 02/22/2012

My bank emails me the next day.

[blndgenie]

02:55 PM on 02/22/2012

of course if this happens then banks will either close accounts or require minimum balances to keep an account open. There is no magic pile of money from which account holders can get 'free loans' with no consequences---liberals just never quite grasp the fact.

[TheRoosterman]

02:49 PM on 02/22/2012

35 buck for a 5 cent overdraft = legal robbery

[mdsman]

03:17 PM on 02/22/2012

So, spending money you don't have is ok but, getting charged for that is not?
Strange way to look at it...
Learn basic addition and subtraction....

[savantpm]

03:21 PM on 02/22/2012

Ditto.

[TheRoosterman]

03:44 PM on 02/22/2012

I never said it was ok to over spend. Learn how to read.

It's also not okay that a bank will take 100 out of your checking to put into savings, with out consent either. Wells Fargo did that to me and it cost me dearly in over draft fees that cost more than the 100 they took out specifically for overdraft protection, that would have never happen had the bank not taken the money from my account with out consent, in the first place.

My solution was to 1 change banks and 2 specifically have my account set that if the money is not there, do not process the transaction. And I haven't had an overdraft fee ever since.

[Charles Nowlin]

02:48 PM on 02/22/2012

I find it amazing how many mathematical wizards exist here in the comments section. I guess they have never made a mistake in their checkbook/bank account.

It only takes an error of a few cents to put a consumer in a deep hole. Some banks would rather have customers in debt instead of giving them the information needed to be financially sound.

[blndgenie]

02:56 PM on 02/22/2012

then you should pay for overdraft protection if you demand that service. Why is that difficult?

[DannyMcDance]

11:10 AM on 02/23/2012

Addition and subtraction qualifies as mathematical wizardry? Have we become this helpless and stupid?