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.

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.

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