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Consumer Watchdog Launches Inquiry Into Overdraft Fees

February 23, 2012 by  

Consumer Watchdog Launches Inquiry Into Overdraft Fees

The newly formed Consumer Financial Protection Bureau (CFPB) launched an inquiry into fees that were charged by banks when consumers overdraw their accounts, a practice that lands financial institutions billions of dollars, MarketWatch reported.

“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” Richard Cordray, director of the CFPB, said in a statement.

According to the news outlet, banks typically provide overdraft “protection” when their customers overdraw their accounts. The institutions covers the transaction but also charge fees as high as $35 for each overdraft.

The unintended consequence, according to MarketWatch, is that a large percentage of bank profits from overdrafts come from low-income consumers who overdraw their accounts, as a type of short-term loan because they can’t cover living expenses.

The Associated Press reported that banks have marketed overdraft protection services aggressively, as they told consumers that opting out of the service “may prevent you from completing everyday transactions including…medical or health emergencies.” Certain financial institutions increased their fee income through a practice known as “re-ordering,” as they would collect all transactions in a given day and then apply them in order from largest to smallest.

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  • Cliffystones

    Overdraft fees get me about as worked up as concert ticket “scalpers” used to. If you don’t want to pay the fees, don’t over-draw your account. Problem solved.

    When discussing this yesterday on Fox News, two of the reporters even admitted that they didn’t regularly balance their accounts. Who’s fault is that? You can even see your complete, up to the moment statement on line nowadays. It’s not the bank’s responsibility to manage your spending habits. And if you’re not too lazy to spend hours on Facebook, but can’t find a few minutes a day to figure out how much money you’ve spent, don’t blame your bank.

  • Ellen

    Debit cards have made life easier for everyone. Businesses save time because cashiers don’t have to process a check at the register. Many businesses didn’t take checks, but do take debit cards (ie: fast food). The fees are paid by retailers, which eliminated fees consumers used to pay banks for their accounts. Dodd-Frank destroyed the debit card fee for large banks, which helps all retailers and hurts consumers who will now have to pay banking fees they used to pay years ago. If you write a check and don’t have the funds to cover it, you get charged a fee by the business you wrote it to and by your bank. Both charge $35 on average. Why would anyone think the banks should lend you money to cover your debit card charges without a fee? Does the government think computer programs to allow banking are free? Are bank employees volunteers? A smart person learns from their mistakes and doesn’t repeat them. Why do people over-spend and get hit with a fee and continue to over-spend? The banks are not making any money off these people anyway and would probably be happy to see them take their business to a different bank. This is one more example of the government trying to make someone else responsible for the irresponsible among us.

    • eddie47d

      Although I agree with the gest of your comment and we should all take more responsibility for our own financing banks do make huge profits off of overdraft fees. In 2009 they made 38.5 billion just from those overdraft fees. These banks actually make more money off of these fees than other income producers like interest rates on loans.Today those fees are higher and their profits are even greater. The average person with an overdraft fee has a credit score of 590 which means that the banks are only making poor people poorer. Charging outrageous individual fees keeps these people in eternal debt and Doesn’t solve their economic dilemma. The best thing for banks to do is to honestly tell their customers not to do business with them if they can’t keep a reasonable balance. Continually gouging their customers comes across as a sick joke and while most folks are tightening their belts the banks are fattening their money belts.

      • Sharon

        PNC has overdraft protection. It charges $38.00 to cover the overdraft with a credit card I have for that purpose. Here’s a novel idea. Drop the fiction that credit card companies do business in only two States, i.e., Delaware and South Dakota where there are no usury laws. If credit card companies were forced to deal with usury laws across America it would be very messy. Perhaps settling for an average of 9% would be fair. Your would be surpirsed at how much money a company can make at 9%. Note that Exxon makes “windfall” profits at 6%. It would be fare more likely that credit card payments would be make at that rate rather than at the penalty rate of 39%. Why do they get away with it? Because they lobbied for it.

      • Vigilant

        No, Sharon, they get away with it because people are either too stupid to read terms and conditions, or they’re profligate and irresponsible in their spending. Banks are charging what the market will bear, and the market has borne this quite well. It’s called “Capitalism.”

  • Emoke

    When debit cards first became popular you could not spend more than the amount on your account with them unless you specifically signed up for overdraft protection. It was a wonderful self regulating way to make sure you did not spend money you didn’t have. Then some pinhead committee somewhere decided that people should not be embaressed by not having the money to pay for their candy bar or beer or whatever so they “passed a law” to make it illegal for banks to not have you overdraft if you did not have the money. Of course when laws dictate how a business should do business that business still needs to stay in business so they enact ways to recoup any losses.

    When will people understand that a private enterprise is not a charity. The bank handles your money for you so they can make money. An insurance company collects insurance premiums to make their investors rich not to make every person who suffers a loss whole. It is silly for us to expect them to operate outside of their guiding principles.

    Yes people need to know how much money they have or suffer the consequences. It is no one else’s job but your own.

  • GENE

    SO MY CHECK FOR $250.00 COMES IN TO THE BANK. BANKS SAYS YOU ONLY HAVE 162.00 IN YOUR ACCOUNT. THEY DO NOT PAY THE CHECK. THEY CHARGE ME 36.00 NSF FUND. HERE IS THE KICKER SEVERAL SMALLER CHECKS COME IN THAT DAY. THEY ALL GET REJECTED, I GET CHARGED FOUR MORE 36.00 NSF CHARGES.
    I SAY IF YOU DIDN’T PAY THE $250.00 CHECK THEN I STILL HAVE $162.00 IN MY ACCOUNT ENOUGH TO COVER THE FOUR OTHER CHECKS. THEY SAY NO WE TOOK THE $250.00 OUT OF YOUR ACCOUNT. WELL WERE THE HELL DID YOU PUT IT??
    CAN THIS BE LEGAL?

    • Bankster Bob

      Sorry to inform you, but we took your money out of your account because we knew that we would need it to cover the bounced checks that you wrote. Your hoping we would put them through out of the goodness of our hearts? Well, that is just dumb. You KNOW we would NEVER do something stupid like that…
      Bankster Bob

    • eddie47d

      Gene is right when he says they can take that $36 fee three or four times out of four checks even if there is enough money to cover three of those checks. Looks like banker theft to me and bad bank policy..

      • Vigilant

        No, eddie, it looks like Gene didn’t manage his money correctly and was penalized for it. Like I said, read the Ts and Cs and be prepared to suffer if you break the rules. Bankster Bob is correct.

      • Joe H

        Even better, eddie, Keep a running balance so you KNOW whether you Can afford the $250.00 check in the FIRST PLACE!!! If you graduated or even got your GED, you should be able to balance your check book!!!

  • s c

    Okeydokey. Now that America is ‘blessed’ by the presence of the “newly-formed” Consumer Financial Protection Bureau, problems STILL exist. Wait! Maybe GB created it and forced Obummer to wait and use it NOW! CONSPIRACY!
    That strange smell that is part of this move is also known as ‘politics as usual,’ ‘this will keep them dumb and happy for a while’ and ‘I’ve blown another one past them,’ people. Get used to it.
    So, this agency protects PEOPLE, or does it protect itself? If the working poor are hurt most [those who can afford being hurt the least], then perhaps the White House “financial wizard” should have thought it out better. After all, folks, if you DON’T make it BETTER (and Obummer damn sure does have the POWER to DO IT), then he should be smart enough to QUIT MAKING THINGS WORSE! Utopians, your W H ‘God’ is a false God! Admit it!

  • JimH

    What costs more? The late fee, or the over draft fee? If you are running out of money before bills, pay the ones with the highest late fees and pay the others next payday.
    I do agree pushing the check worth the most through so they can bounce the six small ones is a nasty trick, but You are responsable for your own spending. It is your fault.

    • GENE

      FORGETTING TO COVER THE $250.00 CHECK WAS MY OVERSIGHT. IF YOU NOTICE I HAD NO COMPLAINT WITH THEM NOT PAYING IT OR CHARGING ME THE $36.00 NSF. THE ADDITIONAL 4 NSF CHARGES ARE BANK ROBBERY.

  • RED RUBY

    Then there is the poor people that have given the bank instructions to take certain things from there card not the bank account and the bank bypasses those intructions and takes it out of their bank account so they can make those overdrafts happen. I have seen them do that to someone who can barely eat let alone pay overdrafts. It cost her $100 + so now she has no money to eat with. They deliberately did this after she made arrangments to have the charges from Pay Pal taken from her card. I think those charges are outrageous. She spent 2 $10.00 and it cost her over $100 because they didn’t take it out of her card.

    • Joe H

      Red Ruby,
      If she only had 100 dollars to eat on, then what was she doing, buying off the internet???

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