Consumer Reports applauds rule that will save consumers billions and ensure fees are clearly disclosed to consumers
WASHINGTON DC – A new rule issued by the Consumer Financial Protection Bureau today will significantly lower the fee large banks and credit unions can charge when customers overdraw their accounts, saving consumers up to $5 billion annually, according to the CFPB. While some banks have voluntarily stopped charging overdraft fees in recent years, the new rule aims to ensure that large financial institutions that continue to impose such fees treat their customers fairly.
“Steep overdraft fees have long been a cash cow for banks that have enabled them to rake in billions of dollars in extra profits at the expense of consumers least able to afford it,” said Chuck Bell, advocacy program director at Consumer Reports. CR had urged the CFPB to limit the costly fees and delivered a petition signed by more than 25,000 consumers calling for the Bureau to take action.
Bell continued, “These fees really amount to short-term, high-interest loans that penalize economically vulnerable consumers and make it harder for them to keep their heads above water financially. The CFPB’s rule will go a long way toward protecting consumers by limiting these charges and ensuring they are reasonable and proportional to the actual costs banks face to cover overdrafts.”
Large banks typically charge $35 for an overdraft loan today, even though the majority of consumers’ debit overdrafts are for less than $26 and are repaid in three days, which translates into an annual percentage rate (APR) of over 16,000 percent, according to the CFPB. The burden of overdraft fees falls most heavily on low- and moderate-income customers who make under $65,000 a year. Black consumers are 69 percent more likely and Hispanic customers are 60 percent more likely than white consumers to live in a household charged at least one overdraft or non-sufficient funds (NSF) fee in the past year.
The CFPB’s rule curbs excessive overdraft fees in a flexible manner by giving banks and credit unions with more than $10 billion in assets the option of charging $5 or a fee that covers “no more than costs or losses.” Large banks and credit unions can still offer overdraft loans at more profitable interest rates as long as they comply with existing Truth in Lending Act disclosure requirements and protections for loans like credit cards. The CFPB estimates that the new rule will save $225 annually per household that pays overdraft fees.
“Excessive overdraft fees can create an unfair burden for consumers who are already feeling the pinch,” said Jennifer Chien, senior policy counsel at Consumer Reports. “The CFPB’s practical approach to limiting overdraft fees protects consumers from misleading and abusive practices while still allowing them to access these services with full knowledge of the actual costs upfront.”
The CFPB’s new overdraft rule is just the latest action taken by the Bureau to protect consumers from predatory practices by the big banks and other financial firms. Since it first began operating in 2011, the CFPB has established new rules to ensure consumers are treated fairly when they take out a loan, make a payment, or open a bank account; helped millions of consumers resolve complaints with financial firms; and returned billions of dollars to consumers who were cheated.
Contact: Michael McCauley, michael.mccauley@consumer.org