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CFPB concerned about overdraft fees

By Allison Ross ·
Thursday, July 31, 2014
Posted: 5 pm ET

The Consumer Financial Protection Bureau again has raised concerns about overdraft protections at banks, today releasing a report that says small debit card purchases lead to expensive overdraft fees.

"Today’s report shows that consumers who opt in to overdraft coverage put themselves at serious risk when they use their debit card," CFPB Director Richard Cordray said in a press release.

The CFPB says it found that the majority of debit card overdraft fees are incurred on transactions worth $24 or less. It found that the majority of overdrafts are repaid within three days.

© bibiphoto/

"The result is that some consumers are essentially paying $34 –- which is the typical overdraft fee -– to have the bank spot them less than $24 for just a few days," Cordray said in remarks to reporters. "If a consumer were to get a loan on those terms, that would equate to an annual percentage rate of over 17,000 percent."

The CFPB says it is looking further into how overdraft works and how it is affecting consumers, saying it is considering whether it will implement consumer protection rules.

However, the Community Bankers Association is objecting to the idea of further regulation on overdraft protections.

"We believe overdraft protection is a vital banking service voluntarily chosen by consumers to ensure their financial needs are met," Richard Hunt, president and chief executive of Consumer Bankers Association, said in a statement. "Banks offer this optional service to help consumers properly manage their deposit accounts."

Hunt said studies have shown consumers appreciate this option, saying that "we strongly urge policymakers to be cautious in their approach to regulating overdraft and to avoid completely eliminating the consumer’s ability to choose."

Opt-in protection

In 2010, federal regulators put into effect a rule that required banks to have consumers opt-in, or consent, to overdraft fees if they overdraw their accounts.

Despite this rule, studies have shown that many Americans still struggle with overdraft fees, forking over hefty fines because they didn't pay close enough attention to their account balances.

One recent study by the Pew Charitable Trusts found that 52 percent of customers who had incurred an overdraft fee didn't even know they had opted into the coverage.

CFPB's plan

This isn't the first time the CFPB has brought up overdraft fees as a concern. Last year, it released a report questioning whether consumers could adequately anticipate and avoid overdraft fees. It noted that different financial institutions had widely different protections and rules on their overdraft protections.

In a call with reporters, CFPB officials wouldn't say exactly what sort of regulations the CFPB is considering for overdraft fees, if any. It says it is trying to better understand what consumers do and don't know, or believe, about how the overdraft protection works.

Do you think more regulations and protections need to be put in place regarding overdraft fees?

For more on this topic, read about how many banks still reorder checks from high to low, which could mean consumers who overdraft pay more in fees.

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August 01, 2014 at 1:23 pm


August 01, 2014 at 9:26 am

I get at least one overdraft every single month, Bank told me to sign up for overdraft protection but rejected me... I have to keep at least 20.00 in savings to not get an overdraft, and I have to check bal daily to stay on top of it all