The latest news on overdraft fees, overdraft fees and other bank fees from the Center for Responsible Lending.
- Citizens Bank, Customers Agree to Mediation in Checking Overdraft Lawsuit
Bloomberg 13 Mar 2012
Citizens Bank of Pennsylvania and plaintiffs in a lawsuit challenging overdraft fees asked for a delay in proceedings while they pursue private mediation, according to a court filing. At least 30 banks have cases pending in the same Miami court. The customers say the banks reorder debit-card transactions in their computers to maximize overdraft fees.
- Wyoming ATM Fee Limit May Soon Be Withdrawn
Billings Gazette (MT) 08 Mar 2012
The Wyoming Legislature approved a measure that, if approved by the governor, would abolish the statewide $2 ATM fee limit. Wyoming is the only state in the nation with a legal cap on ATM fees; and backers of the bill, Senate File 82, say it is unfair to local ATM owners who often cannot earn enough on the fees to maintain the machines, especially those in rural regions. Critics argue that if the cap is scrapped, ATM owners will rip off customers with exorbitant fees. The bill's sponsor, state Sen. Bruce Burns (R-Sheridan), said that while fees are likely to go up in some places -- such as resort areas -- he does not anticipate that ATM owners will begin fleecing their customers.
- Durbin Blasts B of A Over Checking Fees
American Banker 02 Mar 2012
Following an announcement by Bank of America that it will soon roll out a new monthly fee on some checking accounts, Sen. Richard Durbin (D-Ill.) blasted the mega-bank. A recent story in the Wall Street Journal reported that BofA plans to assess monthly fees to customers who do not bank online, maintain a minimum balance, or buy other banking products. The move follows the bank's earlier attempt to assess a $5 monthly fee on debit card holders, which was later abandoned. "Four months to the day after Bank of America rolled back plans to squeeze their customers instead of serving them, they are at it again," said Durbin. He is urging banks to make a clear disclosure to customers regarding all fees in an "upfront, transparent and consumer-friendly manner."
- OK, Consumer Advocates: How Would YOU Set Bank Fees?
BusinessWeek 01 Mar 2012
As regulators move to rein in bank fees and financial institutions continue to seek different avenues of profit, consumer advocates have their own thoughts about how people should be charged for services. Transparency is the primary unifying theme among them, with Ed Mierzwinski of the U.S. Public Interest Research Group citing reports that many banks fail to disclose pricing information as mandated under the Truth in Savings Act. "Hidden fees are one of the worst problems," he declares. "If we have clear fees, then we have the ability to comparison shop." However, adds Kathleen Day of the Center for Responsible Lending, even transparent fees should not be "punitive." As an example, she points to the charges associated with overdrawing an account or taking out a high-interest payday loan at a bank; these fees "pound customers into the ground," she says, because they snowball rapidly and force borrowers deeper into the red. As fees do become more transparent, though, Day warns that consumers will have to inure themselves to seeing costs upfront that previously were hidden. "It may take the public time to get used to having fees a la carte," she notes. Bundled services in the past have left consumers paying for services they do not actually need, but Consumers Union senior policy counsel Pamela Banks insists that bank fees should be assessed only for the services that account holders do use. As a case in point, she says consumers who have just a checking account tend to pay more than those who have multiple lines of business with a provider and, thus, tend to use more services. "Why should I have to pay the fee for someone who is wealthy or has more means than I?" she questions. Rather, Banks suggests that financial services providers offer "a menu that [consumers] can select from and get what they need."
- Study: Fees Driving Customers Away From Big Banks
CreditCards.com 27 Feb 2012
A new study by J.D. Power and Associates reflects a jump in the number of Americans who are switching from larger banks to smaller financial institutions, motivated largely by a bevy of new fees introduced by big banks. Michael Beird of J.D. Power stated in a press release that consumers vote "with their feet" when banks start charging them more for basic services. "It is apparent that new or increased fees are the proverbial straws that break the camel's back," said Beird, who added that across banks of all sizes, more than 50 percent of customers who said fees were the main reason they were leaving also complained about the service at their former banking institution. The study found that the number of consumers switching banks has increased every year for the past three years, from 7.7 percent in 2010 to 8.7 percent last year and 9.6 percent in 2012. About one in 10 customers at a big, regional, or midsize bank switched in 2011 compared to small banks and credit unions, where only about one in 100 customers switched, according to the study.
- Consumer Agency Wants Your Comments on Banks' Overdraft Fees
Everett Daily Herald 26 Feb 2012
Overdraft fees, triggered when an individual spends more money than what is available in their bank account, have the potential to siphon hundreds of dollars a month from the consumers least able to afford them. The average charge has ballooned 17 percent in five years, notes the Consumer Financial Protection Bureau, and now range between $30 and $35. The regulator plans to investigate overdraft policies, taking a close look at whether financial providers follow certain practices specifically to raise the odds of overdrafts occurring -- such as by shuffling the order in which transactions are processed so that funds are tapped out faster. Another example was aired at a recent town hall meeting in New York. The case involved a single mother whose account was being automatically debited by payday lenders and whose bank allowed the withdrawals to continue even though the account was already overdrawn and even though payday loans are illegal in the state. The bank also refused to close the account, which incurred nearly $1,400 in overdraft penalties over the course of two months. The customer was "caught in a spiral of payday loan debt, gouged by her bank's abusive overdraft practices, and the victim of illegal debt collection practices," testified Sarah Ludwig, whose Neighborhood Economic Development Advocacy Project was contacted by the woman. Consumer advocates hope the CFPB's involvement will end those kinds of scenarios. "Americans spend billions of dollars in overdraft fees every year, and overdraft fees are the number one reason that bank customers lose their checking accounts, driving more and more Americans into the ranks of the unbanked and underbanked," said Center for Responsible Lending senior policy analyst Rebecca Borne. "We are so pleased that there is finally a regulator, the CFPB, whose primary responsibility and commitment is to ensuring that reasonable rules of the road are in place to reform harmful and reckless financial practices."
- Whitney Bank Will Pay $6.8 Million to End Case on Overdraft Checking Fees
Bloomberg 23 Feb 2012
Whitney Bank has reached a tentative $6.8 million deal to settle claims that it overcharged customers on overdraft fees. Court records indicate that the agreement would resolve allegations by customers over fees charged to debit cards tied to checking accounts. "While the company admits no wrongdoing, in order to fully and finally resolve the litigation and avoid significant costs and expenses that would be involved in defending the case as well as the distraction caused by the litigation, Whitney Bank has entered into an agreement in principle," the bank said. Approximately 30 banks have been sued over overdraft fee policies after it came to light that many banks use a method to process transactions from the highest dollar amount to the lowest, regardless of the order in which they actually occurred.
- 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.