The top consumer watchdog is scrutinizing big banks to see if their overdraft protection policies are doing enough to keep Americans from unwittingly getting charged huge fees.
The Consumer Financial Protection Bureau is looking at the overdraft protection policies of nine banks, including Bank of America, Wells Fargo and JPMorgan Chase, to determine if rules aiming to protect consumers from getting charged big time for a cup of coffee go far enough, Bloomberg reports, citing "four people briefed on the examination."
The probe reportedly centers on the marketing materials and scripts banks use to convince customers to sign up for overdraft protection.
But just because the CFPB is looking into the issue doesn't necessarily mean the agency will crack down on the banks. The agency proposed getting rid of an amendment to an existing bill that would limit the amount credit card companies can charge customers when signing up for a new account.
Rules passed as part of the financial reform package in 2010 forbid banks from automatically enrolling debit card customers into overdraft protection, a practice that was commonplace before the regulations were passed. The protection would provide customers with a short term loan if they used their debit card to make a purchase and were short on funds. The catch: There was usually a large fee associated with the money, meaning that a $3 slice of pizza could wind up costing an extra $35.
Some customers have sued their banks, claiming that they reordered transactions on their accounts in an aim to drain money quicker and drive up overdraft fees. But the amount of money the banks paid out in settlements paled in comparison to what they've pulled in over the last decade in fees.
Now, customers have the choice to enroll in overdraft protection or risk their card getting declined if they try to buy something and don't have the money.
For those who do choose to enroll in overdraft protection, the fees are getting steeper. The median fee that banks charge customers for an overdraft rose to $30 from $27.50 last year, according to a January report. The likely reason for the surge: Banks are trying to make up they money lost from new rules.
And Bank of America is losing the most. The consent requirement will cost BofA an estimated $3.3 billion per year, compared to $1.4 billion Wells Fargo will lose and the $1.077 JPMorgan is expected to lose, according to a December report.