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Consumers are still being gouged by high overdraft fees and abrupt account closures despite new restrictions on banks designed to protect depositors, according to a study released Tuesday by the Consumer Financial Protection Bureau.
June 11 -
Overdraft revenue at banks, thrifts and credit unions has stagnated over the last year, according to new research, as the industry absorbs the impact of past regulations and braces for potential future ones.
June 3
The problems with banks' overdraft practices go well beyond outright abuses. The solutions must go beyond punishing those abuses.
This week, the Consumer Financial Protection Bureau released a
For starters, existing regulations on overdraft practices are one reason these problems persist. Rules introduced by the Federal Reserve in 2009 require banks to get express permission to enroll consumers in overdraft protection for ATM and one-time debit card transactions. But the requirement doesn't apply to overdrafts from recurring debit card charges (like monthly gym membership payments) or from checks that would otherwise bounce. This essentially means consumers can get hit overdraft charges even if they haven't opted in for a program.
You could argue that consumers need to make sure they understand this when they open accounts. But just review some big banks' online "frequently asked questions" pages about overdraft practices to get a sense of how hard it can be to determine when an overdraft will be permitted and when a fee whether related to the overdraft or its increasingly popular foil, insufficient funds is coming.
Per Capital One's (COF)
"We may continue to authorize, at our discretion, checks, other payments using your checking account number, and debit card transactions that are set up to bill automatically (like a monthly membership fee) even if you do not opt in."
And per Bank of America's (BAC)
"For other types of transactions - like checks, optional Bill Pay and other electronic payments, as well as recurring debit card payments - made using your checking account number, we may charge you a NSF: Returned Item fee each time we decline or return one of these transactions. If we pay one of these transactions, we charge you an Overdraft Item fee."
Adding to the confusion is the fact that banks typically offer and market more than one overdraft service to consumers with little uniformity in the terminology they use and the conditions they apply.
Big banks seem to be in general agreement that actual "overdraft protection" is provided when consumers link a checking account to an alternate account, such as a savings account, credit card or credit line, to cover overdrafts. But the names for coverage the bank itself provides when an account holder goes over the limit (which I'd argue is what many
JPMorgan Chase (JPM) refers to this service as
Confused yet? I
Enforcement actions may force a particular bank to change what has been deemed a misleading marketing practice, either as a stipulation of the action itself or a result of the bank wanting to avoid future fines. They may be a great way to get banks to, say,
Until the inconsistencies and intricacies are dealt with, consumers will have a hard time deciphering what is their best overdraft option, and average annual overdraft charges per customer will remain high.
If the CFPB is reluctant to overhaul the regulation put in place in 2009, it may want to consider putting together a simplified disclosure form, likes the ones proposed for
Jeanine Skowronski is the deputy editor of BankThink. You can contact her at