A year after the federal government created new rules to limit overdraft fees, the fees remain high, and banks continue to find new ways to charge consumers, according to a recent study by the Consumer Federation of America.
Average overdraft fees range from $33 to $37, the report found. Since most consumers overdraw their accounts by just a few dollars, that means banks are reaping interest rates of more than 1,000% on what amount to very short-term loans, according to the federation.
“Bank overdraft fees at the largest banks remain steep,” Jean Ann Fox, the federation’s director of financial services, said in a press release. “If the cost is computed as for a payday loan, banks are charging triple and quadruple-digit rates to borrow money when all the fees are added up.”
The cost of an overdraft loan is highest at Fifth Third Bank, which charges a fee equal to a 3,259% annual interest rate, the consumer federation found. Next came RBS Citizens, where overdraft fees equate to an APR of 2,799%, and PNC Bank, which charges fees equal to 2,574% APR.
In addition, banks continue to manipulate transactions in order to reap more fees, the report found. Instead of processing purchases in chronological order, many banks process the largest transactions first. That increases the chances that customers will overdraw their accounts, so that each subsequent purchase—even a pack of gum—will incur a new overdraft fee.
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“Some banks have hiked the number of overdraft fees consumers can rack up in a single day to as many as ten, costing consumers as much as $370 in just one day,” Fox said.
A year ago, the Federal Reserve passed rules requiring banks to get customers’ permission before charging overdraft fees. Without that permission, if a customer attempts to make a purchase that would overdraw and account, the purchase simply would be denied.
The federation did find some large exceptions to the trend. Citibank never charged overdraft fees for ATM and debit card transactions, and it changed its procedures to process transactions from smallest to largest, reducing the likelihood of customers overdrawing their accounts and incurring multiple fees.
HSBC recently stopped allowing such overdrafts. Bank of America doesn’t permit overdraft for purchases, but does charge $35 if a customer overdraws her account by taking money out of an ATM.
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Image: Nicolas Vigier, via Flickr.com