National News

June 12, 2013

Agency: Opting for overdrafts means higher fees

WASHINGTON — A U.S. agency says consumers who opt for overdraft coverage on their checking accounts pay higher fees and are more likely to have their accounts closed than those who decline it.

A report by the Consumer Financial Protection Bureau released Tuesday says it’s hard for consumers to anticipate and avoid overdraft charges. It found that the cost for “opting in” for overdraft coverage varies widely from one bank to the next.

Customers of some banks paid average charges of $298 annually, while those at others paid $147.

The CFPB has been investigating overdraft fees, which are a major source of banks’ revenue. The agency has said its examination could result in new rules.

The Consumer Bankers Association, which represents large U.S. banks and regional banks, urged the CFPB against adopting any policy that it said could push consumers toward financial firms outside the banking industry which are less strictly regulated by the government and offer costlier alternatives.

“Consumers have the right to choose the products and features which best provide for their family’s daily financial needs,” Richard Hunt, the group’s president and CEO, said in a statement Tuesday. “Fortunately, the marketplace for checking accounts is extremely competitive and banks make every effort to educate their customers about the options available to them.”  

Banks charge overdraft fees when customers try to spend more money than they have in an account.

Banks will allow the transaction and then charge the customer a penalty of as much as $35.  

Consumer advocates say overdraft fees hurt the people who can least afford them because poorer customers are more likely to drain their checking accounts to close to zero.

“Consumers need to anticipate and avoid unnecessary fees on their checking accounts,” CFPB Director Richard Cordray said in a statement. “But we are concerned that some overdraft practices may increase consumer costs beyond reasonable expectations.”

In 2010, the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card or ATM transactions. Banks must obtain a customer’s consent, or “opt-in.” Without overdraft protection, a transaction is declined if the customer can’t cover it. The rule didn’t apply to checks, online bill payments or recurring debits, such as a monthly cable bill. It also didn’t limit how much banks can charge for the overdraft service.

Banks have responded by marketing overdraft protection aggressively.

Negative account balances can lead to involuntary closures of accounts, which can leave a black mark on a consumer’s record and make it hard to open a new account, the report noted. It found that involuntary closure rates at some banks were over 2.5 times higher for customers who had opted for debit and ATM overdraft coverage.

The overdraft fees are complicated, the report said, varying among banks with regard to the number of overdrafts that can be incurred in a single day, for example. The maximum amount that a bank is willing to advance to a customer as protection can vary widely based on many factors.

The order in which check, debit card and other transactions are posted to an account can affect the number of overdraft fees, and the report found widely varying posting practices among banks.

 

1
Text Only
National News
  • Police: Suspected killers wore GPS devices

    Two convicted sex offenders dutifully checked in with police every month and wore their GPS trackers around the clock — the rules of parole that are designed to tip off authorities if a freed felon backslides.

    April 15, 2014

  • Questions linger year after Boston Marathon bombs

    A surveillance video shows a man prosecutors say is Dzhokhar Tsarnaev placing a bomb near the finish line of the Boston Marathon, just yards from where an 8-year-old boy was killed when it exploded.

    April 15, 2014

  • 10 Things to Know for Tuesday

    Your daily look at late-breaking news, upcoming events and the stories that will be talked about Tuesday:

    April 15, 2014

  • Aw, geez, 'Fargo' is on TV with Billy Bob Thornton

    After failed attempts and broken dreams, by golly, someone went and put “Fargo” on series TV.

    April 15, 2014

  • Little sign of progress as Obama, Putin speak

    Speaking for the first time in more than two weeks, President Barack Obama and Russian President Vladimir Putin showed little sign of agreement Monday, with the U.S. leader urging pro-Russian forces to de-escalate the situation in eastern Ukraine and Putin denying that Moscow was interfering in the region.

    April 14, 2014

  • Drivers in California crash had clean records

    Both drivers in the fiery Northern California crash involving a FedEx truck and bus full of students had clean driving records.

    April 14, 2014

  • Post, Guardian win Pulitzers for NSA revelations

    The Washington Post and The Guardian won the Pulitzer Prize in public service Monday for revealing the U.S. government’s sweeping surveillance programs in a blockbuster series of stories based on secret documents supplied by NSA leaker Edward Snowden.

    April 14, 2014

  • Police: Utah mom admitted to killing her 6 babies

    Authorities say a Utah woman accused of killing six babies that she gave birth to over 10 years told investigators that she either strangled or suffocated the children and then put them inside boxes in her garage.

    April 14, 2014 1 Story

  • Deal signs bill extending tax-free holiday weekends

    Gov. Nathan Deal today signed House Bill 958, legislation that will extend the statewide back-to-school tax-free holiday and ENERGY STAR and WaterSense appliance tax-free holiday weekends for an additional two years.

    April 14, 2014

  • Chances of getting audited by IRS lowest in years

    As millions of Americans race to meet Tuesday’s tax deadline, their chances of getting audited are lower than they have been in years.

    April 14, 2014