Wednesday, February 22, 2012
Consumers Need Protection From Bank Practices That Boost Costly Overdraft Fees
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) announced today its plans to review bank policies that can trigger customers to overdraft their accounts and get hit with costly fees. Additionally, the financial watchdog is looking for input on a proposed “penalty fee box” – a disclosure on a consumer’s checking account statement that would highlight the amount overdrawn and total overdraft fees charged.
While banks can no longer automatically sign up customers for expensive overdraft protection, consumers are still vulnerable to unfair overdraft practices, according to Consumers Union, the nonprofit advocacy arm of Consumer Reports.
“Consumers still need protection from bank practices designed to boost overdraft fees,” said Pamela Banks, senior policy counsel for Consumers Union who attended today’s announcement. “Banks should be prohibited from deceptive marketing practices that dupe customers into enrolling in these programs and shouldn’t be allowed to re-order how transactions are processed to boost overdraft fees. The ‘penalty fee box’ is a simple tool that will make it clear to consumers how much of their money is going towards these fees and how to avoid them in the future.”
The CFPB inquiry launched today will focus on common overdraft practices, including transaction re-ordering that adds to consumer costs, missing or confusing information, misleading marketing materials, and the disproportionate impact on low-income and young consumers.
Since August 2010, banks have been required to get their customers consent before signing them up for automatic overdraft protection for ATM and debit charges. If a consumer “opts in” to overdraft loan programs, the bank is able to assess a high fee each time an ATM or debit transaction overdraws the account. If the customer does not “opt in,” then the bank must simply deny ATM or debit charges when there is not enough money in the account to cover the transaction.
Consumers Union noted that there are cheaper alternatives for consumers when it comes to covering overdrafts triggered by debit cards or checks. Most banks allow customers to link checking accounts to a savings account, credit card, or a line of credit. When an overdraft occurs, the bank will automatically transfer money to cover the transaction from the linked account. The FDIC has concluded that the fees assessed for these other types of programs are significantly lower than for automatic overdraft loan programs.
“Consumers should not sign up for high cost overdraft protection at their bank,” said Lauren Bowne, staff attorney for Consumers Union. “Banks should be required to inform customers of all of their options for avoiding overdrafts so consumers can make the best choice for them.”
Contact: David Butler or Kara Kelber, 202-462-6262 or Michael McCauley, 415-431-6747, ext 126