-
With the CFPB poised to finalize regulations on overdraft fees, it is important to realize how much the product helps informed consumers.
November 10 -
Community banks get almost half of their service charges from overdraft fees. That could become problematic as regulators continue to look into the issue.
June 22 -
Banks with more than $1 billion of assets are now required to report overdraft income in their call reports. Data released Wednesday reveals which banks rely most heavily on revenue from overdrafts and which could be most vulnerable to looming changes in overdraft regulations.
May 28
Should the Consumer Financial Protection Bureau propose new rules aimed at making checking account overdraft policies at banks and other depository institutions safer and more transparent? Some banking industry representatives are
Rules require that banks may not levy overdraft charges unless consumers provide fully informed consent in advance. Yet when Pew surveyed consumers, we found that more than half of those who incurred a debit card overdraft fee
Pew also found that more than three-quarters of those who paid an overdraft fee voiced concern about specific overdraft policies, such as the high cost. (At big banks, fees range from $35 to $38 per transaction.) Other overdraft policies that rankled survey respondents included the imposition of "extended" fees and the still-too-prevalent practice of banks
In addition, our research shows that the financial burdens of overdrafts are not distributed evenly among Americans; they fall harder on younger, lower-income and nonwhite account holders. The cumulative effect can, and does, push vulnerable people out of the banking system altogether. Our survey of debit card users who overdrew their checking accounts found that 13% of those who paid an overdraft penalty no longer have a checking account.
Checking account overdrafts first began as a service to provide occasional support for consumers but today have become a major revenue generator for the industry. When Pew
All of this evidence adds up to a need for significant change. Clear disclosure of the terms and conditions on bank overdraft policies would improve the situation. But in its coming rulemaking, the CFPB needs to go further. While disclosure is necessary to protect consumers, it is not sufficient. The CFPB should make overdraft penalties reasonable and proportional to the banks' costs in covering the overdraft and should prohibit the practice of transaction reordering. The bureau's policies — and those of prudential bank regulators — should also encourage financial institutions to offer affordable and sustainable small-dollar credit products. This approach would allow overdraft to return to what it was originally intended to be: an occasional service for a modest fee.
Susan Weinstock directs the consumer banking project at the Pew Charitable Trusts.