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Transaction shuffling and multiple, exorbitant fees for small shortfalls in their checking accounts costs Americans billions per year in unfair fees. More than half of Americans are now living paycheck-to-paycheck, making a majority of U.S. families vulnerable to bank overdraft practices that are exceedingly misnamed “overdraft protection.”
Public pressure and lawsuits have forced some of the biggest banks to stop the most egregious practices, some no longer reorder transactions to boost overdraft fees. But the practice is far from being extinguished throughout the industry.
A CRL post on “Storify” rounds up the latest news on a string of lawsuits alleging inappropriate bank overdraft practices.
Fast Facts--Overdraft Loans
Total cost per year consumers pay in overdraft fees: $23.7 billion.
The most common trigger of overdraft fees are debit card transactions. Together, debit card and ATM overdrafts account for 46% of all overdraft fees.
Most debit card transactions that trigger overdrafts are small. Average transaction: $20. Average fee charged: $34.
80% of consumers surveyed would rather have their debit card transaction denied than have it covered in exchange for an overdraft fee.
Americans aged 55 and over pay $6.2 billion in overdraft fees annually.
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.
CRL recommends strong action by our nation’s bank regulators to end overdraft abuse. Specifically, regulators should do the following:
Prohibit overdraft fees on debit cards: two of the major banks already use this treatment both because it is fairer and because they have data showing that customers do not want the service.
If any fees are charged, require the cost to be reasonable and limit the number of charges.
Prohibit the re-ordering of transactions to artificially generate more fees. Just like the mechanics of credit card payment allocation manipulation, which Federal Reserve consumer testing showed could not be remedied through disclosure, the mechanics of transaction reordering are complex and misleading and run counter to customer assumptions. The harm this practice causes cannot be remedied through disclosure either.
Prohibit steering by requiring banks to provide customers who want overdraft coverage the lowest-cost coverage for which they qualify.
The Opt-in Rule is not Enough
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.
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