The latest news on overdraft fees, overdraft fees and other bank fees from the Center for Responsible Lending.
- The $169 Billion Hidden Market: People Without Banks
Strategy+Business 05 Aug 2011
According to FDIC data, an estimated $169 billion in income never flows through a bank or credit union. For years, banks have experimented with winning over "bottom of the pyramid" consumers in the U.S., and many have concluded that the effort was too risky and not lucrative enough. However, researchers from the University of Virginia Darden School of Business spent a year studying the issue and conclude that some different approaches could prove more successful in attracting deposits from the millions of households that have no relationship with a bank or credit union. The rapidly growing Latino population is particularly underserved, the researchers say. Several factors make the Latino population particularly attractive. Many Latino households feature more than one adult generating income, and the group's workforce participation is high. While some unbanked Latinos are undocumented aliens who would have trouble opening an account without a Social Security number, many others are just put off by deposit requirements and language barriers, and turn instead to check-cashing stores and payday lenders that cost more to use. Banks and credit unions could hire more employees who speak Spanish, educate staff members on cultural issues, and help customers with paperwork. Banks could also offer incentives to employers to bring staff members to the bank, or hold "sign-up" days in workplaces during which the benefits of banking — especially the absence of check-cashing fees — are promoted. Finally, the researchers argue that bank managers should get out the message that bringing large numbers of unbanked households into the system lowers the risk of crime. Because unbanked consumers carry cash or keep it at home, they are often the victims of violent robberies.
- Overdraft Fees Remain Steep at Largest Banks
ABCNews.com 04 Aug 2011
According to a new survey by the Consumer Federation of America (CFA), the country's banking heavyweights are still levying high overdraft charges. The research found that the median overdraft fee remains at $35, with some banks charging as much as $37 per transaction, and that two-thirds of banks still pile on fees if customers do not bring their accounts back in line within a certain amount of time. For example, JPMorgan Chase charges an "extended overdraft" fee of $15 after each five-day period that an account remains in the negative. CFA's survey results come a year after new regulation took effect requiring banks to obtain approval before signing customers up for overdraft programs. However, the rule does not require banks to limit how much they charge on the fees, and there is no cap on the number of times a bank can penalize customers for a single violation. The survey found that banks still allow for several overdraft fees to be charged in one day, as well. The findings were based on overdraft polices at 14 of the country's biggest banks as of June.
- ING Buyout Worries Fair-Lending Advocates
Delaware Online 02 Aug 2011
Consumer advocates are voicing concern over Capital One's buyout of ING Direct USA. The National Community Reinvestment Coalition (NCRC) has asked the Federal Reserve to hold public hearings on the matter, claiming the acquisition could set the country up for more economic turmoil. If the merger does goes through, Capital One would become the country's fifth-largest bank. "Should a systemically important bank be allowed to become bigger without a clear case that it will benefit society? The answer is emphatically no," according to NCRC President and Chief Executive John Taylor. The organization has filed a complaint with the U.S. Department of Housing and Urban Development, claiming the bank is violating fair-lending laws.
- Free Student Checking May Come at a Price
USA Today 01 Aug 2011
Many financial institutions offer "free" student checking accounts; however, fees associated with some of those accounts -- for ATM usage, overdrafts, and other services -- can eat into the already strained finances of a cash-strapped college student. Fortunately, those costs are avoidable. Many large banks and credit unions offer student checking accounts, which typically have low minimum-deposit requirements and no monthly fees, as long as accountholders meet certain conditions. Financial institutions are not doing this out of the kindness of their hearts, however, says Richard Barrington, personal finance expert for MoneyRates.com. They assume college students will not stay poor forever and hope they will continue the banking relationship once they begin making money. Many student checking accounts can be opened for less than $25, but the ongoing minimum requirements for free checking are important, as well. Students often run their accounts "right down to the edge," Barrington says. One way to avoid ATM withdrawal fees on "free" student checking accounts is by opening an account at a nationwide bank. This is especially important when attending a college far from home. "You want to get an idea of what the bank's footprint is, so you're able to continue to use your own bank's ATM while you're at a college and while you're at home," Barrington says. "Fees from another bank's ATM are pretty steep." Paying an average of $30 each time the account is overdrawn is another way to lose money, and Barrington says that students should track their spending online or sign up for automatic text alerts when their funds fall below a certain threshold rather than enroll in an overdraft protection program.
- Do You Bank Online? You Probably Pay More for the Convenience Than You Think
Time 01 Aug 2011
For tech-savvy consumers, online banking and other tools are a huge leap forward in convenience, freeing users from hassles like driving to an ATM and sending checks through the mail. But banks get even more out of this arrangement than their customers do, allowing them to retain their customer base in the future even as they hike fees and offer fewer traditional perks. According to the financial services technology company Fiserv, about half of all customers who pay bills online say they are less likely to switch financial institutions as a result. "The likelihood of attrition goes way down the deeper a customer gets into online services," explains Geoff Knapp, vice president of online banking and consumer insights at Fiserv. "There's clearly a hassle factor in that once you get that deep, the level of ire you have to have to go through the whole process and unwind is significant." To some degree, this loyalty is deserved. Online banking customers report higher levels of satisfaction with their financial institution. The problem is that this loyalty seems to make customers more complacent about fees and less willing to shop around. Knapp says banks are seeking alternate sources of revenue after financial regulation curtailed credit card and overdraft charges. Charging for new digital services like the ability to pay another person directly using one's smartphone could be a strategic way for banks to recoup some of those losses.
- Union Bank of California's Debit Card Overdraft Lawsuit
Business Insider 01 Aug 2011
San Francisco-based Union Bank is the latest big financial institution to face litigation over its overdraft policies, which, according to a plaintiff's lawyer, generated $18 million year in revenue by manipulating the order in which customers' transactions were processed. The case, which has been granted class-action status, argues that the bank posted checking account withdrawals not in the order in which they occurred, but rather in a sequence that allowed it to maximize overdraft charges against the customer. To illustrate, a woman with $50 in her account who then makes a $5, $10, and $110 purchase -- in that order -- throughout the course of a day would overdraw her account only on the final transaction, triggering a single fee of about $35. However, processed from largest transaction to the smallest, that same customer would overdraw three times, incurring more than $100 in fees and possibly denting her credit score. Today's bank customers must opt in to overdraft programs, instead of being automatically signed up for them; and nearly one in three do. However, consumer activists fret that that these spenders are doing so against their best interests -- often as a result of aggressive marketing strategies employed by banks -- and for unjustified reasons, such as being afraid of receiving a fine or simply wanting banks to stop pushing the issue. "What really matters is who is opting in," says Leslie Parrish of the Center for Responsible Lending. "Is it that very profitable group of customers that overdraw their account frequently? Unfortunately, those are the most financially vulnerable customers."
- Report: Consumers Want Transparent Checking Accounts
CreditCardGuide.com 28 Jul 2011
According to the findings of a new survey by the Pew Health Group, American checking account holders agree overwhelmingly that they want greater bank transparency on terms, conditions, and fees -- even if that means more government intervention. Nine out of 10 adults polled said they are tired of rules embedded within mountains of disclosure forms, of feeling vulnerable to overdraft fees, and of trying to break down complex and technical language. “For a consumer to be able to figure out … the terms and conditions of their checking account is nearly impossible,” says Susan Weinstock, director of Pew’s Safe Checking in the Electronic Age Project. The study shows that 83 percent would like to see banks provide a summary of overdraft options they offer, how the options work, and a description of the fees; 78 percent say banks should be required to provide a one-page summary of information about their checking accounts; and 70 percent want banks to be required to process transactions in the order in which they occur as opposed to processing them from highest dollar amount to the lowest dollar amount. In light of the findings, the Pew Safe Checking project is calling on the new Consumer Financial Protection Bureau to force banks to make changes. Lauren Saunders, managing attorney for the National Consumer Law Center, says the CFPB is a good place to start and notes also that the federal Office of the Comptroller of the Currency has extended the public comment period until Aug. 8 for consumers to weigh in on pending OCC guidelines governing overdraft fees and payday loans, with comment forms available through the Center for Responsible Lending. “Banks have done a lousy job of telling people safe and affordable ways of covering overdrafts and in disclosing their fees,” says Saunders. “They are getting ever more inventive with more hidden fees and Americans are fed up. They want to know what the affordable ways of being protected from overdraft fees are, rather than being shunted into the most expensive, dangerous forms of overdraft protection.”
- Debit-Card Overdraft Suit Gets Class-Action Status
Washington Post 27 Jul 2011
A lawsuit by customers who say Union Bank of San Francisco wrongfully charged overdraft fees was granted class-action status on July 26. The suit -- the first of many against some of the country's biggest lenders -- claims the bank processed debit-card transactions from largest amount to smallest, rather than chronologically. The practice resulted in a higher incidence of customers -- including Cynthia Larsen of Riverside, Calif. -- overdrawing their checking accounts and incurring additional fees. Two years ago, Larsen was charged three overdraft charges of $32 each; had her transactions cleared in the order they were completed, she maintains, only one overdraft fee would have been incurred. The many lawsuits against U.S. banks accused of the practice are currently before U.S. District Judge James Lawrence King in Florida. While the cases have not yet been decided, obtaining a class-action status in this case will set the stage for similar decisions. Consumer advocates have long said that overdraft fees unfairly punish low-income individuals. Last year, the Federal Reserve changed the rules, banning banks from charging customers overdraft fees unless they have opted in for such a service. According to Moebs Services, however, about 77 percent of bank customers have opted in for the service.
- How to Save Money on Bank Fees
WTOL.com 26 Jul 2011
To save money on bank fees, consumers should first decide what they need in an account. It also is important to determine what kind of accounts they qualify for based on such factors as whether they can meet requisite minimum balances, whether they can sign up for direct deposit, whether they can open a savings account as well as a checking account, and whether they are able to manage their accounts online or by phone rather than in at a bricks-and-mortar location. They should review bank fees relative to the benefits they receive and ensure they are only paying for the features they actually use. Consumers would be wise to look out for ATM fees, as well as the cost of buying checks -- which is often higher when the checks are purchased through the bank. Consumers also can opt for debit over credit, but they must be careful to review all the details and avoid overdraft fees. Consumers also may choose to bank at a credit union, many of which have lower costs than banks. Additionally, they may want to consider online banking, which can reduce check and postage costs. Finally, consumers should check their services every year to make sure they are getting the best deal.
- Bankoh Settles Suit for $9M on Improper Overdraft Fees
Honolulu Star-Advertiser 19 Jul 2011
Every Bank of Hawaii customer with a debit card who paid more than one overdraft fee in a day during the past five years will qualify for a share of a $9 million class-action lawsuit settlement. Plaintiffs accused the state's second-largest bank of reordering debit card transactions from highest to lowest dollar amount, allowing it to drain available funds faster in order to collect as much as possible in overdraft charges. Bank of Hawaii announced a tentative settlement on July 18. It said the $9 million would be deposited into a settlement fund that will be used to reimburse customers and pay legal, administrative, and other costs in exchange for a complete release of all claims against the bank. Similar suits against American Savings Bank and Central Pacific Bank, the state's third- and fourth-largest institutions, are still proceeding. Attorney John Perkin of Perkin & Faria LLLC, a Honolulu-based firm, said he did not know the exact number of Bank of Hawaii customers eligible for the refunds, but said it will be "a large number."
- Would a Monthly Fee Drive You Away From Debit Cards?
Atlanta Journal-Constitution 15 Jul 2011
Upcoming changes in the card industry may prompt banks to begin charging a monthly fee for consumers who use debit cards. In a new Associated Press-GfK poll, 61 percent of respondents said they would find an alternate method of payment if their bank began imposing a fee of $3 per month. For a $5 fee, two-thirds of survey respondents said they would find another way to pay. That figure rises to 81 percent in the case of a theoretical fee of $7. Though fees for debit card use remain only a possibility at this point, some banks already have begun reducing their debit card rewards programs.
- Union Bank Must Face Group Lawsuit on Overdrafts, Judge Says
Bloomberg 14 Jul 2011
U.S. District Judge James Lawrence King has ruled that UnionBanCal Corp. customers may sue as a group over the bank's policy regarding overdraft fees on checking accounts. The decision will certify the first class-action case in litigation against dozens of banks for similar practices. However, King said that customers will not be allowed to pursue racketeering charges against the bank. Customers are suing 30 banks, alleging they illegally charged high overdraft fees.
- American Airlines Federal Credit Union Announces Bounce Protection Plus
Sacramento Bee 13 Jul 2011
American Airlines Federal Credit Union has changed its overdraft policy, giving customers a small safety net in case of error or emergency. The credit union is rolling out its new Bounce ProtectionPlus program, which will allow members to lower their overdraft fees to just one penny under many circumstances. The bank will not charge customers the typical $25 fee if they add funds to their account before 10 p.m. on the same day or if the overdraft is less than $10. "We know that our members occasionally have an emergency or make a small error when balancing their checking account ... we believe a small mistake shouldn't result in a big penalty," said Nancy Crouch, director of card services at the credit union. However, any account that remains in the negative by more than $10 after 10 p.m. will be charged the $25 fee per overdraft.
- Checking Accounts May Have Fewer Consumer Safeguards than Credit Cards
ABC News 27 Apr 2011
Checking accounts lack the same protections from high fees as credit cards, which enabled banks to collect more than $37 billion in overdraft fees in 2009, according to a Moebs Services report. Although 90 percent of Americans have checking accounts, few consumers understand the terms of those accounts, resulting in needless overdraft fees and penalties, according to a new Pew Health Group study. Pew's analysis of 265 checking accounts at 10 of the largest banks found that the average checking account has a disclosure of 111 pages, an $8.95 monthly fee, an overdraft penalty fee of $35, an overdraft transfer fee of $10, and an extended overdraft penalty fee of $25 every seventh day the account is overdrawn. The Moebs report predicts that banks will collect $38 billion in overdraft fees this year. To prevent consumers from unwittingly paying these fees, Pew says banks should provide a single page disclosure box for checking account holders. The law mandates that credit card companies publish the Schumer box, which requires firms to list their long-term rates in the same format. Pew's model checking account disclosure box features data such as the minimum deposit required to open an account, ATM fees, account closing fees, overdraft transfer and penalty fees, and the posting order in which deposits and withdrawals are processed.
- Overdraft Fees Remain Flat
Business Wire 07 Mar 2011
The nationwide median for overdraft fees has plateaued at $28, holding steady at this level for seven consecutive months. Since 2008, though, the cost has increased by roughly 11 percent. Previously, major financial institutions with more than $50 billion in assets were the driving force behind the rising cost of overdrafts. However, a recent study from economic research firm Moebs Services finds that large Wall Street and regional banks have held their prices flat in recent months. "The only thing that has changed in past seven months is that community banks have increased their overdraft fee in anticipation of a sharp drop in revenue, due to the upcoming loss of interchange fees that is mandated in the Durbin Amendment to the Frank-Dodd bill," explained Moebs Services CEO and economist Mike Moebs. "We expect credit unions will follow suit prior to the implementation of that provision of the bill." Banks with more than $50 billion in assets are doing away with the average consumer checking account because of the loss of the fee revenue from overdrafts. Moebs said these checking accounts are moving to neighborhood banks because of their lower rates.
- 8 Ways to Avoid Getting Burned With Prepaid Debit Cards
San Francisco Chronicle 03 Mar 2011
There are a number of ways to avoid unexpected fees and other problems that can arise when using a prepaid debit card. The first key step is to read the fine print, as some cards carry monthly charges that can rapidly eat away the balance. The small print also will contain information about other fees -- including ATM fees, inactivity fees, activation fees, and more. Cardholders should also be on the lookout for chargebacks, which occur when a purchase is made through a retailer that does not accept prepaid cards. In cases like these, a consumer may end up being responsible for a purchase that they thought was paid for with a prepaid debit card. Monitoring card activity carefully is another way for consumers to make sure their prepaid card activity is on the up-and-up. Consumers also should be extremely careful not to lose their card, because prepaids do not have the same protections as traditional debit or credit cards if lost or stolen. It is recommended that spenders use the whole balance on the card, so as to avoid inactivity fees in the event of a return after a lapsed period of time. Consumers may also opt to use the prepaid card to purchase a gift card, which means exchanging a card with unfamiliar terms and fees for a card that is easier to manage. Moreover, cardholders could withdraw the entire amount in cash, because any ATM withdrawal fees will cost less than fees for holding onto the card. Finally, some consumers may want to close the card and request a check refund -- although there may be a fee for this and it requires a bit more work. Ultimately, prepaid cards can be helpful for certain people; and the best way to avoid fees is to be educated about the card's stipulations.
- New Overdraft Laws Could Be Trouble for Bad-Check Writers
Wall Street Journal 03 Dec 2009
New legislation drafted to offer consumers protection against excessive overdraft fees actually could have some unintended drawbacks. If the bill passes with language intact restricting banks to one overdraft fee per month and six for the whole year, bankers warn that they will have little incentive to cover bounced checks for many account-holders. While the overdraft measure certainly will result in more declined transactions for small purchases like gas and coffee, paper checks present a more complicated problem. The flood of returned checks that could ensue may mean even more costs -- and possibly even law enforcement intervention --for consumers and businesses alike. Merchants at one end of the transaction will have to go back to the customer in order to be paid for goods or services, which then could double his or her costs by incurring bad-check fees of $25 to $35 from the bank plus a returned-check fee by the store, landlord, or loan servicers -- which can charge $70 or more. In addition, the spillover from a failed transaction could lead to collection calls, bad marks against the consumer's credit, and even prosecution for multiple offenses. "If we start returning checks, the ripple effects are significant," according to one official of a major financial institution. "Those are the transactions that customers want to be paid." According to a late 2008 report by the Federal Deposit Insurance Corp., nearly a third of overdraft transactions approved by banks are still tied to checks.
- Making Mortgages More 'Vanilla'
Boston Herald 11 Sep 2009
HUD Secretary Shaun Donovan says mortgage-disclosure forms will be revamped to help borrowers better understand loan terms and the costs associated with the transaction. The reforms will enhance transparency and make the process simpler, as borrowers will be offered "plain vanilla" 30-year fixed mortgages first. They would have to opt into more complicated financial products and be alerted to the risks. "They days of fine print, amorphous language and an avalanche of papers [could soon] come to an end," declares John Taylor of the National Community Reinvestment Coalition. The reforms also would ban yield-spread premiums -- commissions paid to brokers by lenders for selling mortgages with costly terms -- and either eliminate or restrict prepayment penalties, as well as require mortgage originators to retain at least a 5 percent stake in all of their loans. While some observers are concerned that the changes would boost mortgage rates by 0.5 percentage points, others believe such a cost is minimal compared to the price of the current mortgage crisis.
- Protect Against Bad Credit Practices
Detroit Free Press 06 Sep 2009
While President Obama's proposed Consumer Financial Protection Agency (CFPA) would not have the authority to set mortgage or credit card rates, the Detroit Free Press writes that the regulator would be in a position to mandate changes that would better allow borrowers to comparison-shop for financial products. Research suggests that many of the borrowers granted subprime home loans in recent years actually were eligible for better terms and lower interest rates, but consumers have come to lean too heavily on salespeople to explain increasingly complicated mortgages and other types of debt. Incentives, for example, often drove loan associates to push a bigger loan than a borrower could afford. Meanwhile, for those who do not believe the reckless lending decisions made by some consumers affect them, the editors point to deteriorating residential values in neighborhoods that have been hit hard by foreclosures. The fallout to individual borrowers who made bad decisions and responsible borrowers who were hurt indirectly perhaps would not have been so broad, they suggest, had an oversight body such as the CFPA been in place during the housing boom. Although the paper concedes that such regulation likely would have narrowed the level of choice in mortgage products, "at least they'd be honest ones."
- Free Checking Accounts Could Be on the Way Out
Cleveland Plain Dealer 28 Aug 2009
Free checking accounts have been a staple of banks since the mid-1990s, but the advantages of no monthly fees or commitments may soon come to an end. Banks' biggest profit-turning fees, including for overdraft fees, are coming under scrutiny and increased regulation, making it necessary to identify other ways of generating revenue. "Overdraft on your account by $5 and get hit with a $30 fee? It's like the most expensive loan of your life," says Chicago banking analyst Maclovio Pina of Morningstar Inc. "It's a huge driver of profits. Having a roof on fees will mean they'll definitely want to look elsewhere for income." Jean Ann Fox of the Consumer Federation of America agrees. "Putting the brakes on abusive overdraft lending is going to lead to some rethinking of how checking accounts are structured," she says. "They're going to have to look at how they price banking services." Industry insiders say banks may begin to phase out free checking and reinstate minimum-balance requirements, among other tactics.