Home > 2013 > Personal Finance

CFPB Zeroes In on Bank Overdraft Fees

Advertiser Disclosure Comments 0 Comments

CFPB Report: Overdraft FeesThe Consumer Financial Protection Bureau released a white paper today on the impact of overdraft and non-sufficient funds (NSF) fees on the average bank account holder.

The report is the result of an examination the CFPB announced in February 2012, and involves an analysis of information provided from a request for information published in the Federal Register, along with institution data from a sample of large banks. The CFPB found three issues in particular to be especially troubling about overdraft protection programs: Opting in puts consumers at greater risk, overdraft practices are complex and may be difficult for consumers to understand, and the costs and risks vary by institution.

“Many financial institutions market their overdraft services as a protective measure that offers consumers greater peace of mind and security,” said Richard Cordray, Director of the CFPB, in a media call on Monday. “They correctly note that consumers often benefit when overdraft transactions are paid, which helps avoid returned checks or declined transactions. But our study also raises questions.  What is marketed as overdraft protection can, in some instances, put consumers at greater risk of harm. Consumers need to be able to control their costs and expenses, and they deserve clarity on those issues.”

Since mid-2010, a bank cannot charge a consumer an overdraft or NSF fee without a consumer opting into a program. This change is rooted in a consumer protection instituted by the Federal Reserve when it changed Regulation E.

The CFPB study identified a group of Americans as “heavy overdrafters” — a small percentage of consumers who incur 10 or more NSF or overdraft charges in a year. The proportion of consumer checking accounts with at least one overdraft or NSF fee that were heavy overdrafters was 27.8% for banks that tracked all incidences for all accounts opened at any time during 2011.

“A small percentage of consumers are footing the bill,” Cordray said. The CFPB report also found a correlation between banks with heavy overdraft users and increased involuntary account closures.

The starkest statistic from the report showed accounts that had at least one overdraft or NSF fee in 2011 from the banks surveyed paid an average of $225 in annual fees. Also, these fees accounted for 61 percent of total consumer deposit account service charges in 2011 among the surveyed banks.

Overdraft protection can cost consumers a great deal, the study found. The average checking account fees per accountholder who chose to opt in were $196 in 2011, while the average fees for those who did not opt in were $28.

Cordray was careful to note that the CFPB is not suggesting in this report that financial institutions be prohibited from providing overdraft protection, which can be a valuable tool for consumers who need access to funds. But further examination of bank practices will continue.

“We need to determine whether or not they’re causing the kind of harm the federal consumer protection laws are designed to prevent,” Cordray said.

A senior CFPB official on Monday’s media call also reiterated that there are no legislative or enforcement actions planned on the issue, but the examination of banks’ particular practices in overdraft programs will continue to be examined.

That doesn’t mean Capitol Hill isn’t already interested in the issue of overdraft fees. Rep. Carolyn Maloney (D-N.Y.) and 45 other members of Congress introduced a bill in March to protect consumers from overdraft programs. The legislation would limit the number of overdraft fees consumers can incur, among other protections.

Image: Hemera

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team