As part of a brand-new investigation into bank overdraft-fee practices, Consumer Financial Protection Bureau Director Richard Cordray today unveiled a prototype "penalty fee box" for bank statements, so consumers can see how much overdraft fees are costing them.
The CFPB would like to know what you think of the proposed penalty fee box, and also what you know about overdraft fees and your ability to avoid them. Do you know whether you've "opted in" to get such "protection" (at an average cost of $30 to $35 per overdraft)? And did you know, as we've reported, that banks have added numerous other consumer fees in recent months to snag more revenues?
Today, the CFPB released a consumer advisory with all the basic information consumers need to know about overdraft fees. Consumers who want to report on their experiences with overdraft fees, and discuss the new fee penalty box can communicate in several different ways with the bureau (see page two of the linked document).
Consumers Union, the advocacy arm of Consumer Reports, advocates cheaper alternatives for consumers to cover overdrafts triggered by debit cards or checks. Most banks allow customers to link checking accounts to a savings account, credit card, or a line of credit. When an overdraft occurs, the bank will automatically transfer money to cover the transaction from the linked account. The FDIC has concluded that the fees assessed for these other types of programs are significantly lower than for automatic overdraft loan programs.
“Consumers should not sign up for high cost overdraft protection at their bank,” said Lauren Bowne, a Consumers Union staff attorney. “Banks should be required to inform customers of all of their options for avoiding overdrafts so consumers can make the best choice for them.”
In its investigation announced today, the CFPB said it would study a banking practice that it says can increase consumer costs: reordering a consumer's transactions in a way that maximizes overdraft fees. The investigation also will focus on bank marketing and disclosure language on overdraft protection programs for missing or confusing information. The bureau says it has received reports of misleading marketing materials and will examine how different ways of explaining overdraft protection affect the number of customers opting in.
The CFPB also will study why most overdraft fees are incurred by young and lower-income consumers. A 2008 study by the FDIC showed that these consumers—ostensibly a more vulnerable population—were much more likely to incur such fees than others. In the study, nine percent of checking-account customers incurred about 84 percent of overdraft fees. Nearly half of all young adult cardholders—46.4 percent—incurred overdraft fees; 15 of those racked up 10 or more in a single year.
The average bank overdraft fee in 2011 ranged from $30 to $35, the CFPB reported. For a comparison of bank and credit-union fees, check this recent post on MyBankTracker.com.