In a system enormously out of balance, fees for abusive overdraft loans have reach $17.5 billion per year, more than the loans themselves, which now amount to $15.8 billion per year. CRL's report, "Out of Balance," finds that abusive overdraft loans, once the exception, are now the rule in a system where not-sufficient funds (NSF) fees–historically used to discourage overdrafts—have shrunk to 31 percent of overdraft-related fees. Abusive overdraft loan fees now account for 69 percent of those fees. These small, high-cost loans are made by a bank or credit union to an account holder who is "in...
Excessive overdraft fees charged by banks and credit unions can cause devastation for financially vulnerable families. Many lenders used predatory policies and practices designed to repeatedly extract excessive fees from customers who could least afford them. Overdraft fees are a leading cause of financial institutions closing a consumer’s account and reentry into the banking system often is exceedingly difficult, increasing the financial insecurity of many consumers. CRL advocates for legislators and regulators to rein in the size and frequency of these fees. We estimate that the savings from these fee eliminations will be between $3 billion to $4 billion for working families.
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Overdraft lending: the problem Our nation's major banks and credit unions are making unsolicited, high-cost loans to their checking account holders when their account balance dips below zero, generating enormous fees for the banks and frequently driving their customers deeper into the negative. Financial institutions never have to reveal that customers pay triple- and quadruple-digit interest rates. They make overdraft loans without customers' consent, and they manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts. Research shows that low-income...
Banks stand back as debits and ATM withdrawals cause high-cost overdrafts for their customers Rather than linking their customers' checking accounts to their savings or other resources to cover overdrafts, many banks and credit unions are automatically covering their customers' shortfalls with expensive short-term loans. More overdrafts are happening when customers swipe their debit card or make an ATM withdrawal than when they write a check. In these cases, banks can warn customers or merchants when they have insufficient funds—but most do not. They can also decline the transaction and save...
VULNERABLE CONSUMERS CAUGHT IN OVERDRAFT CYCLE CRL has conducted a survey of overdraft loan customers. Our findings suggest that: * Sixteen percent of overdraft loan users account for 71 percent of fee-based overdraft loan fees. *Repeat users are more often low-income, single, non-white renters. * Repeat users are in effect using the overdraft loans as an expensive substitute for a line-of-credit, and are paying fees that can be as costly as payday loans.
This report quantifies the fees that people with checking accounts are now paying for high-cost, short-term overdraft loans. Many people are finding themselves with overdraft loans they never asked for, do not want, and cannot afford. Federal regulators have failed to protect these customers. The Center for Responsible Lending finds that borrowers are paying more than $10 billion per year for fee-based overdraft loans.
Overdraft loan programs (also called "bounced-check protection" or "courtesy overdraft protection") allow customers to incur debt when their checking account goes into a negative balance. Borrowers are charged a flat-fee per check or non-check overdraft and must bring their account to a positive balance within a short time period. The institutions that operate the programs do not disclose an annual percentage rate (APR) because they insist that overdraft loans are not covered by the Truth in Lending Act (TILA).