Skip to content Skip to footer
|

Banks Profiting From Overdraft Coverage Plans, Federal Agency Says

(Photo: Faraz Dhishoom / Flickr)

Washington, DC — Overdraft protection often is a better deal for banks than for consumers, a new study by a federal watchdog agency reveals.

The report, to be released Tuesday by the Consumer Financial Protection Bureau, found that consumers who sign up for banks’ optional overdraft coverage on debit card transactions and ATM withdrawals pay higher fees and are more likely to end up with involuntary account closures than those who decline.

Banks profit from consumers’ misfortune.

Fees for overdraft and non-sufficient funds accounted for more than 60 percent of banks’ total revenue from consumers’ checking accounts in 2011, according to the report.

“Many financial institutions market their overdraft services as a protective measure that offers consumers greater peace of mind and security,” Richard Cordray, the bureau’s director, said Monday in a call with reporters. “They correctly note that consumers often benefit when overdraft transactions are paid, which helps avoid returned checks or declined transactions. But our study also raises questions. What is marketed as overdraft protection can in some instances put consumers at greater risk of harm.”

Cordray said the bureau plans to research overdraft programs further before taking any policy action.

Overdrafts occur when customers try to withdraw or spend more money than they have in their accounts. Banks can block the transaction and charge an “insufficient funds fee,” or allow the money to go through and charge an overdraft fee.

In mid-2010, a new rule by the Federal Reserve stopped banks from charging overdraft fees for ATM withdrawals and most debit card transactions unless the consumer agreed first.

Monday’s report scrutinized data from some of the country’s largest banks, which provided the consumer bureau with information about their overdraft programs and accounts during 2010 and 2011.

Account holders who chose to opt in to overdraft coverage paid an average of $196 in fees in 2011, the report found. In contrast, the average fees for consumers who didn’t opt in were $28.

Bureau officials noted that consumers who overdraft frequently are more likely to consent to overdraft coverage, but even among heavy overdrafters – those who had 10 or more overdrafts during the first half of 2010 – less than half opted in. Account holders who did opt in were more than 2.5 times more likely to have banks close their accounts because of unpaid negative balances, according to the report. Such involuntary closures can make it harder for a consumer to open another account.

The report concluded that banks rely on a confusing array of rules to determine how they impose overdraft fees, coverage limits and the order in which they post transactions, making it hard for consumers to predict or avoid overdraft costs.

“All of this raises questions about the degree to which even the most sophisticated consumer could readily anticipate and manage the cost of engaging in a series of transactions at one institution or compare the cost of overdrafting at different institutions,” the report stated.

Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn

Dear Truthout Community,

If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.

We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.

Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.

There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.

After the election, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?

It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.

We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.

We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.

Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment. We’re presently working to find 1500 new monthly donors to Truthout before the end of the year.

We’re with you. Let’s do all we can to move forward together.

With love, rage, and solidarity,

Maya, Negin, Saima, and Ziggy