Many banks are still automatically approving debit card transactions and charging a fee around $35 in the event of insufficient funds. Among the four largest banks in the country, Bank of America and Citibank do not engage in this practice, but Wells Fargo and Chase continue it.
How does re-ordering work?
CRL recommends strong actions by the Consumer Financial Protection Bureau to end overdraft abuses, as follow:
- Prohibit charging overdraft fees on debit card and ATM transactions, which financial institutions can easily decline at no cost to the customer.
- Limit the number of overdraft fees that financial institutions can charge customers, consistent with FDIC guidance that it is excessive to charge more than six overdraft fees in a12-month period.
- Prohibit the manipulation of posting order to increase fees. Financial institutions should be required to minimize fees through posting order whenever feasible.
For more information and solutions, see our "State of Lending" chapter on High-Cost Overdraft
A rule from the Federal Reserve requiring banks to obtain permission before enrolling their customers in automatic approval of debit card and ATM transactions is inadequate.
The rule does not address clear abuses that customers experience once they have opted in, including the exorbitant cost of debit card overdraft coverage re-ordering transactions, an egregious practice that has come up in recent lawsuits.
Many banks are using aggressive and misleading marketing to persuade their customers to opt in to high-cost systems that most Americans report they would not want.
Have you opted in? Are you considering it? Check this out first.