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CFPB Turns Blind Eye To Overdraft Fee Abuses

Wednesday, May 16, 2018
Rebecca Borné

Overdraft fees cost consumers $14 billion a year

WASHINGTON, D.C. – Mick Mulvaney, who is unlawfully leading the Consumer Financial Protection Bureau (CFPB or the consumer bureau), recently announced that the agency will halt its rulemaking plan to address bank overdraft fee abuses. The announcement was made along with the agency’s updated spring agenda, which dropped an overdraft fee rule from the list of upcoming actions.

Since February 2012, under the previous CFPB Director, the consumer bureau has studied abusive overdraft fee practices and the results have been clear: overdraft programs use unfair and abusive practices to exploit financially vulnerable customers.

“Mulvaney’s decision to halt the CFPB from moving forward on addressing abusive overdraft fee practices will severely impact poor families and communities of color,” said Rebecca Borné, Senior Policy Counsel at the Center for Responsible Lending. “Financial institutions rake in billions annually through overdraft fees, often at the expense of their most vulnerable customers, ultimately driving many out of the banking system altogether. The $35-per-overdraft fee is so lucrative for banks, particularly on debit card transactions, that they push overdraft programs on customers and misrepresent purported benefits. Even one overdraft can trigger hundreds of dollars in fees in just a few days and drive a customer much deeper in the hole. Mulvaney’s short-sighted, misguided approach to consumer protection is the reason the Administration and the Senate should nominate and confirm a permanent CFPB director who genuinely has the public’s interest at heart.”

Last August, the CFPB released a study that exposed the extent to which large banks’ abusive overdraft fees drain working families’ checking accounts. The study found that nearly 80% of bank overdraft and non-sufficient funds (NSF) fees are borne by only 8% of account holders, who incur ten or more fees per year, with many of those customers paying far more. For one group of hard hit consumers, the median number of overdraft fees was 37, nearly $1,300 annually, meaning some pay much more. The study also confirmed that overdraft fees on debit cards can lead to extremely high cumulative fees for consumers.

Over the last 15 to 20 years, many financial institutions have betrayed the trust of their account holders by replacing what was once an occasional accommodation with an exploitative system of routine high-cost overdraft fees that drive account holders deep into debt. Some banks do not charge overdraft fees on debit card transactions or ATM withdrawals, and other institutions should follow their lead. All financial institutions should also stop charging disproportionate fees on overdrafts that dwarf the institution’s cost of covering the overdraft transaction.

Learn more about how overdraft fees are harming consumers. (PDF)

For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Ricardo Quinto at ricardo.quinto@responsiblelending.org.