Abusive Overdraft Fees Deprive Bank Customers of $15 Billion | Comment

Skyrocketing prices for food, fuel and accommodation make most consumers worry about whether they will have enough money for a given month. Even after adjusting spending to stretch expensive dollars as much as possible, many people remain puzzled as to what else can be done to weather the storm.

Customers with bank and credit union accounts should pay close attention to their monthly statements to identify multiple overdraft charges.

Marketed and sold as a “customer convenience,” overdraft fees are charged whenever the cost of a transaction exceeds a checking account balance. With an average of $35 per use, banks are inflating their profits — most often by tapping into the short-term cash needs of consumers who are typically only days away from their next deposit.

In return, banks and credit unions across the country raise $15 billion each year from cash-strapped customers with an average account balance of $350 or less. More monetary misery is added by the manipulative practices of some banks designed to maximize fees by delaying showing deposits in the account or reordering transactions.

It should be noted that some banks have voluntarily chosen to change or end their overdraft programs. Consumer advocates applaud lenders who have taken steps to reduce these costly fees.

However, there is no legal obligation for other institutions to do so. Some lenders continue to charge three or more overdraft fees of $34 or more per day, often costing consumers over $100 in a single day. The typical debit card overdraft fee, the most common source of overdraft, is from a transaction under $24, refunded within three days. In lending terms, an overdraft fee of $34 for a $24 three-day loan equals 17,000% APR.

As one consumer told the Consumer Financial Protection Bureau (CFPB), “$35 is a lot of money for someone who doesn’t have it.”

There is nothing inherently wrong with a financial institution making a fair profit. But there’s nothing fair when billion-dollar institutions design products to prey on people with the least financial resources — just to boost their bottom line.

“Rather than competing with quality service and attractive interest rates, many banks have become addicted to overdraft fees to fuel their profit model,” CFPB Director Rohit Chopra said.

Other CFPB research found that consumers who are charged more than 10 overdraft fees per year account for 75% of overdraft fees each year.

If you think “there should be a law,” New York Congresswoman Carolyn Maloney agrees.

More than a year ago, she proposed the Overdraft Protection Act and was joined by 30 co-sponsors. Since then, the number of co-sponsors has doubled to 60 and now includes House colleagues representing 25 states, including California, Illinois, Maryland, Massachusetts, Michigan, New York and Texas. The accompanying legislation is also in the US Senate.

The Overdraft Protection Act (HR 4277) would amend the Truth in Lending Act to strengthen fair and transparent banking practices. Among its provisions, the bill would require fees that are “reasonable and proportionate” to the amount overdrawn, expand timely and detailed customer notices and/or statements, and give customers the ability to cancel a transaction before incurring charges. costs.

For example, it is currently legal for banks to change the order of transactions, so they can debit accounts from largest to smallest to increase the number of overdraft fees triggered. As banks maximize their overdraft income, consumers are being drained of dollars that can keep their household finances in the black. Maloney’s bill would ban such practices.

Other research and advocacy reinforce Maloney’s legislative purpose. Congressional testimony from the Center for Responsible Lending (CRL) highlighted how consumers of color are being harmed the most by ill-conceived institutional practices.

“By causing account closures and eroding trust in financial institutions, bank overdraft practices fuel financial exclusion,” CRL wrote. “Banks that promise millions or billions of dollars of investment in underserved communities while continuing to reap hundreds of millions or even billions of dollars a year in overdraft fees are depriving the very communities they claim support… Congress must hold these regulators accountable while ensuring that all checking accounts are free from destructive overdraft practices.

At a July 12 press conference called by Maloney, Nadine Chabrier, CRL’s senior policy adviser, highlighted the organization’s legislative support.

“The legislation by Congresswoman Maloney and (Sens. Cory Booker, DN.J., and Elizabeth Warren, D-Mass.) would provide much-needed relief to consumers by limiting the cost and frequency of overdraft fees,” said said Chabrier. “Congress should pass these bills.”

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