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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