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Consumer bureau investigates bank overdraft fees
The Consumer Financial Protection Agency will question banks about how overdraft fees may create serious economic hardship for consumers least able to afford it.
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Kai Ryssdal: Today the Consumer Financial Protection Bureau set its sights on overdraft fees. That extra hit -- usually something not-insignificant, like $35 -- that you take in the case of insufficient funds.
Never happens to you, you say? Congratulations, you're among the vast majority that rarely or never overdraws. We heard this statistic this morning on another public radio program.
That 84 percent of overdraft fees are racked up by just 9 percent of consumers. And we got to wondering who that 9 percent is. Elizabeth Wynne Johnson has more from Washington.
Elizabeth Wynne Johnson: Does this sound familiar? You know money’s tight this month, but you think you’re OK. Then the bank statement arrives.
Bart Naylor: F.Y.I. -- we charged you $35 or $85 this month in overdraft charges. And you would say, well now how is that possible?
Bart Naylor is an expert in financial regulation at the consumer advocacy group, Public Citizen.
Naylor: We certainly welcome the CFPB’s entry into this very nettlesome area of overdraft fees.
What exactly is so nettlesome about a penalty for promising money that’s not there?
Bert Ely: I can remember the day -- I’m old enough to remember -- when people who overdrew their account would be asked to take their business elsewhere.
That’s banking consultant, Bert Ely. Every overdraft amounts to an unplanned loan by the bank. Fees not only compensate, they may also deter bad choices. But how are consumers making those choices? Naylor says banks bury the explanation of fees in hundred-page contracts.
Naylor: It’s unclear exactly how Americans seem to go $38 billion in overdraft fees over a year, when people are usually trying to be careful with their money. And so I think that’s one of the important issues that a CFPB study can ascertain.
Consumer advocates say over-drafters tend to be younger and poorer. But are they reckless, or just ill-informed? Ensuring that consumers know where they stand, and when it’s safe to write that next check, is a start.
In Washington, I’m Elizabeth Wynne Johnson for Marketplace.
As a former sufferer of NSF charges, news like this seems way overdue. Growing up, no classes were offered or required in school that taught me how to create a budget, how to benefit from credit accounts, and worst of all, the repercussions for not doing either of theses. My parents were no help; they were no better at doing these things than me and I was born years before they should have been having children. I grew up in the 70-80s and certainly didn't learn about the implications of excess from the American public or media. Excess was the price of entry. As an adult, I think of all the money I lost over the years because I was ignorant and thought with my wallet instead of my brain. Instead of money matters, I learned how to build a birdhouse, a tool box, and a shed in Shop class. What a waste. Now, our nation has trillions of dollars of debt. Banks charge $35 or more for NSF and what do I hear? The government is looking into this. Isn't that like having a trial by jury of criminals? If I couldn't afford the check that cleared before my payroll deposit hit, what makes banks think I can afford $35 in NSF fees... Add to this how they clear checks and debits before applying deposits and the NSF fees rack up. I remember once losing more than $300 in NSF fees because my deposit was cleared after eleven payments had been posted. The government sets a terrible example of spending beyond its means but it's the common person that's raked over the coals for writing a check before a deposit was made. It just sickens me - and I'm happy to know that part of my past is over. Yet it still goes on for 8-9% of the American public.
