The latest news on overdraft fees, overdraft fees and other bank fees from the Center for Responsible Lending.
- Consumer Inquiry Focuses on Bank Overdraft Fees
New York Times 22 Feb 2012
The Consumer Financial Protection Bureau (CFPB) has started inquiring about banks and the overdraft fees they charge to customers who bounce checks or withdraw more than they have in their accounts while using debit cards and ATMs. CFPB director Richard Cordray says the fact-finding exercise will focus on whether banks misled customers in 2010 about those fees after new U.S. Federal Reserve regulations for overdraft protection were implemented. Among the areas to be examined are whether banks systematically reordered customer transactions to maximize potential overdrafts and the impact of those fees on young and low-income bank customers. The examination could lead to additional regulations on consumer banking. Meanwhile, the CFPB already has created a "penalty fee box" where notifications would appear on checking account statements for customers who have overdrawn their accounts that details what fees were assessed.
- Complaints Spur Investigation of Overdraft Fees
Los Angeles Times 22 Feb 2012
Following a flood of complaints about excessive overdraft fees, the Consumer Financial Protection Bureau (CFPB) has launched an inquiry into bank practices and is seeking public input on a disclosure box that would explain the charges. Despite 2010 Federal Reserve rules that block banks from automatically signing up customers for overdraft protection, consumer advocates are still unhappy about the penalties, which run $30 to $35 per overdraft. Also, according to the CFPB, the average overdraft fee is up 17 percent over the past five years. In response, the bureau on Feb. 22 announced that it is launching a new campaign called "What's your overdraft status?" to encourage consumers to learn if they have overdraft coverage and to understand the fees associated with it. CFPB director Richard Cordray said that current technologies make it easier for individuals to accidentally overdraw on their accounts. "We want to learn how consumers are affected and how well they are able to anticipate and avoid paying penalty fees," he said. The watchdog also identified four components that it will focus on in its evaluation: the reordering of transactions; missing or confusing information; misleading marketing; and disproportionate impact on low-income and young consumers. It also is asking for public input on a draft "penalty fee box," which would show up on an individual's bank statement and highlight any overdrafts and related fees.
- Bank Fees Survey EOY 2011: Free Checking Makes a Comeback
MoneyRates.com 13 Feb 2012
New findings from MoneyRates.com show that the percentage of free checking accounts increased four points over the mid-2011 survey; while the average monthly maintenance fee on checking accounts dropped, and the average minimums required to open a new account and to avoid monthly fees also declined. In MoneyRates.com's mid-2011 survey, the number of checking accounts with no monthly maintenance fee dropped from 37.7 percent in mid-year 2010 to 34.7 percent. The latest numbers reveal a rebound, however, with the percentage of free checking accounts now up to 38.8 percent, the highest figure since mid-2010. The average for accounts that do charge a monthly fee also dropped during that time period, from $11.75 to $11.28, but analysts say the real opportunity to save money comes from opening an account that charges $0 in monthly fees. The survey did find one area in which consumers are paying more: overdraft fees, which increased from an average $28.85 in mid-2011 to $29.23 today. Customers also pay more at the ATM, with the average that banks charge their own customers for using an out-of-network machine rising from $0.85 in mid-2011 to $1.10 today. Additionally, banks charged non-customers $2.37 on average for using their ATMs, a rate that remained steady from the prior survey.
- Overdraft Settlements Cost Banks a Small Fraction of What's Netted in Fees
Huffington Post 07 Feb 2012
Overdraft fee settlements that big banks have negotiated recently are a mere pittance when compared to the billions of dollars of fees that have been racked up over the past 10 years. JPMorgan's tentative agreement to settle for $110 million on charges that it made a habit out of reordering checking account transactions to maximize fees is no different. "Chase made enormous profits from overdraft charges, much of it taken from Chase's most vulnerable customers," the class action lawsuit states. A recent report found that the bank made $500 million annually in post-tax income from the practice of shuffling transactions from the highest amount to the lowest. "These penalties are one iota of what's been taken out of consumers' pockets," said National Consumer League director Sally Greenberg. Chase's proposed settlement comes just a few months after Bank of America finalized an agreement to pay consumers $410 million to settle similar allegations. The sum makes up just 10 percent of the fees charged to customers.
- JPMorgan to Pay $110 Million to Settle Overdraft Claims
American Banker 06 Feb 2012
According to court filings, JPMorgan Chase has reached an initial agreement to pay $110 million to settle an overdraft fee class-action lawsuit. The case is based allegations that the bank and many others manipulated the order in which they processed customers' transactions in order to increase the amount of overdraft fees they could charge debit card customers. "Chase made enormous profits from overdraft charges, much of it taken from Chase's most vulnerable customers," the lawsuit states. The bank allegedly re-sequenced the transactions from the highest dollar amount to the lowest. According to its own analysis, it generated $500 million a year in post-tax income from the high-to-low re-sequencing. Chase originally maintained that it processed the transactions in this manner because consumers requested it, but internal documentation reveals that the bank received nearly 10,000 complaints each month about the practice. The filing states that the agreement is only a "preliminary understanding," which needs the approval of U.S. District Court Judge Lawrence King. If approved, the bank will have fared pretty well, given that the $110 million offered is just 22 percent of its earnings from wrongful overdraft fees.
- Overdraft Revenue Declines, Study Finds
Credit Union Times 06 Feb 2012
Credit unions missed out on $1.4 billion in revenue last year after banks upped their overdraft fees and alternative short-term loans gained in popularity, according to new findings from the research firm Moebs Services. According to the study, the U.S. median overdraft charge went up by $2.50 per purchase between June and November 2011, but credit unions bucked the trend and maintained a median overdraft charge of $25 per transaction during this time period, Moebs Services CEO Michael Moebs said. At banks, meanwhile, the median overdraft fee is $30 per purchase, he noted. Moebs said the systemwide overdraft price hike of $2.50 per transaction is the direct result of the FDIC's new overdraft rules for banks, which took effect in 2011. The rules require banks to take a tougher stance on habitual overdrafts, such as by capping how many overdraft fees a customer can accrue per day and offering alternative programs to customers who overspend more than six times a year.
- Survey: 610,000 Switched Banks to Protest Debit Card Fees
Los Angeles Times 06 Feb 2012
Javelin Strategy & Research released a report on Feb. 6 finding that 610,000 Americans moved their money to a smaller financial services provider in the last quarter of 2011 to protest announcements by major banks about new monthly charges for debit-card use. That figure represented 11 percent of the 5.6 million U.S. consumers who changed banks during those three months -- a modest number, according to Javelin. Bank of America incited a fiery protest in September when it announced its intent to charge $5 a month to customers who made purchases on their debit cards. Activists from the Occupy movement, consumer watchdogs, and even President Barack Obama criticized BofA's move; and an online initiative called Bank Transfer Day surfaced to encourage people to move to smaller banks or credit unions. BofA eventually abandoned its plan without levying the $5 fee, and other major banks also scrapped their plans to charge monthly debit-card usage fees to their own customers. "This exodus was certainly not the massive departure banks might have feared," Javelin wrote in a report of its analysis but added that it was unusual for bank customers to switch banks in protest at all, since people are "highly resistant to moving their money."
- TCF to Give Customers a Choice on Covering Overdrafts
American Banker 03 Feb 2012
TCF Financial of Wayzata, Minn., recently announced that it will soon offer customers another option for paying overdraft fees on checking accounts. Beginning on March 20, customers will be able to choose to pay overdrafts on the normal per-item basis or by paying a single daily fee to cover all overdrafts for a specific day. TCF spokesman Jason Korstange said the bank has been testing the option in Michigan for the past year and decided to roll it out to save customers from paying several fees when they overdraw their accounts. Those who choose the new option will have to pay the daily overdraft fee the next business day, so it may not be ideal for all customers.
- Intrust Settles Lawsuit Related to Overdraft Fees
Wichita Business Journal 25 Jan 2012
Intrust Bank has agreed to pay $2.7 million to settle a class-action lawsuit involving overdraft fees. The Kansas bank was sued in September 2010 by Theresa Molina, who accused it of posted checking account transactions in a different order than in which they occurred, causing customers to incur additional and onerous overdraft fees, according to a Sedgwick County District Court document seeking preliminary approval of the settlement. Intrust denies any wrongdoing and claims that it is agreeing to the deal to avoid further litigation costs. The class in the suit covers "all Intrust account customers who maintained an Intrust account while residing within the state of Kansas and who from Oct. 1, 2005, to June 30, 2010, incurred more than one overdraft fee on a single banking day, at least one of which was on a debit card transaction," according to the settlement agreement. A final fairness hearing on the agreement is scheduled for May 21.
- Cash Is King for Consumers Amid New Debit-Card Rules
Los Angeles Times 24 Jan 2012
Old-fashioned greenbacks are still the preferred choice for consumers making small-ticket purchases, especially as merchants try to deflect the rising costs of accepting debit card payments. While 65 percent of consumers used a credit or debit card for a purchase during the past week, nearly 80 percent used cash, finds a new report from Javelin Strategy & Research. And if banks attempted to levy debit card fees -- as Bank of America tried unsuccessfully to do in late 2011 -- 32 percent of consumers said they would switch to cash to buy goods. Just 25 percent of consumers, meanwhile, said they would turn to a credit card instead. Part of cash's resurgence comes at the urging of retailers and stores that have long asked their customers to use the payment method because it does not incur additional fees. "The recession led many people to turn away from credit cards in favor of debit and prepaid cards as ways to control debt, but this trend seems to be slowing as the economy stabilizes," said Javelin President James Van Dyke in a statement. "Today, there are more conflicting pressures on payment choice than ever before."
- Bank of the West Settles Mass Overdraft Case
American Banker 23 Jan 2012
Bank of the West is in the process of formally settling a lawsuit targeting its overdraft fee practices, making it the 10th bank to pay its way out of a huge Florida class-action suit. Lawyers for the plaintiffs confirmed that "an agreement in principle has been reached for a full and complete settlement." No details on the terms of the deal were released. The class-action litigation charges 30 different banks of re-ordering customers' debit card payments from highest-to-lowest amount in an attempt to increase the incidence of overdraft fees. Lawyers in the case are hoping to recover up to 70 percent of the plaintiffs' alleged damages in settlements with the banks. Bank of the West said it has modified its practices and now orders transactions chronologically.
- Some Fees Might Have Failed in 2011, But Others May Come
USA Today 18 Jan 2012
Despite beating back new charges for debit card use late last year, analysts say consumers have not seen the end of fees. A regulation that went into effective on Oct. 1 slashed fees that banks can charge retailers when consumers use their debit cards, and financial institutions are expected to continue to seek ways to recoup the lost income resulting from those changes. Whether they will succeed depends on the purpose of the fees, according to Mark Schwanhausser, senior analyst at Javelin Strategy & Research. Banks that attempt to charge fees for things consumers used to get for free will fall flat, Schwanhausser says. Rather, he says the industry "needs to find the fees people see value in." These might include fees for additional services, such as being able to text a customer service representative or deposit checks with a smartphone, Schwanhausser offers as examples. To circumvent a consumer backlash, banks need to levy fees on services before they become mainstream, warns Alex Matjanec, co-founder of MyBankTracker.com. "There's so much opportunity to introduce new things online that don't exist," he says. "There's opportunity to grow through technology and offer new perks and conveniences and services."
- Will Streamlined Checking Disclosures Catch On?
Fox Business 12 Jan 2012
U.S. banks might finally be starting to understand that they must treat customers well if they want them to remain customers. Chase recently became the first bank to voluntarily adopt a simplified checking account disclosure form. The simplified document aims to make it easier to compare banks, rather than using the lengthy, jargon-heavy forms found at most institutions, where important information is frequently scattered about or buried in complicated language. In 2011, a research arm of Pew Charitable Trusts, noting that the typical checking account disclosure form exceeds 110 pages, proposed a one-page disclosure. This form included details about minimum balances, checking interest rates, and assorted fees. It also spelled out the banks' policy for the sequence used to post withdrawals. This became noteworthy after suspicions arose that many banks were deducting big withdrawals first in order to rack up as many overdraft charges as possible. Although Chase's disclosure form runs three pages, it is an important step in the right direction. In fact, Chase even consulted with Pew's Safe Checking in the Electronic Age Project to devise the form.
- Fee Limits May Spur Cash-Only Rules
Atlanta Journal-Constitution 10 Jan 2012
Consumers could be hit with more $5 and $10 minimum charge rules -- or at least strongly worded requests -- when using credit or debit cards this year, as retailers attempt to adjust to an unintended effect of new federal limits on how much card issuers can charge them in "swipe fees." Those regulations already incited an outcry when some banks tried to levy monthly debit card use fees on cardholders to offset the revenue hit -- only to retreat in the face of a scathing backlash. Now, in a strange twist that stems from how swipe fees have been assessed, the new rule could provoke card companies to actually increase fees on smaller purchases in order to recoup lost revenue from lower fees on larger ones. Experts say that could prompt shops with numerous small-ticket sales, such as coffee shops and gas stations, to force or goad customers into paying with old-fashioned cash for purchases under a certain amount. Stores can now turn down credit cards for those smaller purchases, and they may request that customers not use debit cards for them either.
- Consider Yourself Warned: More Bank Fees on the Way
Chester Daily Local 09 Jan 2012
Banking industry experts and Consumer Reports' recent analysis suggest Americans should expect higher banking fees and tougher account requirements in the near future, especially since the economy remains shaky. For example, some banks -- including Chase and PNC -- are now charging a $25 fee to close certain accounts. Customers with multiple accounts at one bank might avoid some fees, but they are not totally off the hook. Banks may attempt multiple charges even for prime customers, including fees for paper statements and higher safe-deposit costs. Consumers are more likely to find lower fees and more attractive rates at community banks, larger credit unions, and online banks. Experts predict that banks will continue to tweak various fees; explore tighter account requirements; invest in cost-cutting measures;and toy with new sources of revenue, such as sharing customers' marketing data. They are attempting to make up billions in lost revenue due to the economic downturn, new regulations and, in some instances, their own mismanagement.
- New Law Would Make It Easier to Switch Banks
CBS News 04 Jan 2012
U.S. Rep. Brad Miller (D-N.C.) has introduced the Freedom and Mobility in Consumer Banking Act, which would "make it simpler to close accounts, and for 30 days following the closure, any direct deposits would have to be transferred to the new bank free of charge," according to Miller. "During that period, banks would also be obligated to notify customers when a recurring debit occurs. This measure would not completely remove all the hassles of switching banks, but would protect consumers from unnecessary fees and grief," says Miller. The mechanisms to transfer accounts are already in place. The FDIC uses them whenever it takes over a failing bank and transfers accounts to a new bank.
- We Paid Almost $30 Billion in Overdraft Fees in 2011
Time 03 Jan 2012
A year and a half after the Federal Reserve implemented new rules requiring banks to obtain customers' permission before enrolling them in an overdraft program, U.S. consumers still paid a collective $29.5 billion in overdraft fees in 2011. According to Moebs $ervices, the fees reached an all-time high in 2009 of $37.1 billion. But according to Susan Weinstock, director of the Safe Checking in the Electronic Age Project at the Pew Charitable Trusts, many bank customers remain confused about the forms they received from banks asking them to "opt in." The majority of banks sent frightening letters to customers, warning that if they did not opt in, their debit cards could be turned down at the register. Weinstock said many people mistakenly believe that choosing to opt in means they will not be charged such fees. Research conducted by the Center for Responsible Lending came to the same conclusion. Additionally, more and more people are finding themselves paying for overdraft fees due to the decrease in "float." The term refers to money that has been charged during a transaction but that is not removed from the spender's account for a day or two. Banks also are still raking in plenty of revenue from overdrafts simply because they are charging more per infraction -- the median penalty for 2011 moved up to $29 after holding steady at $25 for several years.
- Add Umpqua to Roster of Banks Sued for Overdraft Practices
American Banker 03 Jan 2012
Joining the masses of banks being taken to court for processing debit card transactions from highest amount to lowest -- a way to maximize overdraft fees -- is Umpqua Bank in Portland, Ore. A California woman initiated a class-action suit filed on Dec. 30 in the San Francisco-Oakland Division of the Northern District Court of California, claiming the bank's unsavory practices cost her hundreds of dollars in overdraft fees. But Umpqua's general counsel, Steven Philpott countered that the fees should not come as a surprise to customers since new rules require banks to obtain customers' permission before they can cover overdrafts. Philpott admitted that the bank had participated in such practices, but does not do so anymore. The litigation follows many other class-action suits against Bank of America, Union Bank of California, and others.
- World Travelers Getting Checks in Mail
USA Today 03 Jan 2012
Travelers who used MasterCard, Visa, or Diners Club credit and debit cards while traveling abroad Feb. 1, 1996, through Nov. 8, 2006, should check their mailboxes for a rebate check. Refunds ranging from $18.04 to thousands of dollars are being sent to approximately 10 million such cardholders. The checks are the settlement of a class-action lawsuit that argued those card companies and several of their issuing banks overcharged and inadequately told users about the additional fees added onto purchases abroad. The fees, usually 1 percent to 3 percent of the charged amount, have long agitated many business travelers. The refunds have been anticipated for a while. The $336 million settlement was approved in October 2009, but close to a dozen appeals had to be resolved before the funds could be distributed. "Nobody is happy about the length of time it took," says Merrill Davidoff, co-lead counsel on the case. "But we're gratified we finally got some of these overcharges to approximately 10 million consumers who we alleged were unjustifiably charged these fees." The lawsuit drove credit card companies and banks to adopt more transparent fee disclosure practices. At least 7 million people have received checks, with the current batch going to recipients on the East Coast, according to Davidoff.
- Commerce Bank to Pay $18.3M to Settle Overdraft Suit
American Banker 27 Dec 2011
The banking arm of Kansas City-based Commerce Bancshares has reached an $18.3 million settlement in a class action over overdraft fees. A grievance lodged in December 2010 alleged that Commerce Bank improperly charged overdraft fees on certain debit card transactions. According to the complaint, the bank is one of several that manipulated the order in which customers' debit card payments were processed in order to maximize the fees the companies was able to charge.