The Consumer Financial Protection Bureau has issued a report detailing the impact of overdraft fees on American banks and credit union customers.
The report, which can be found here, scrutinizes overdraft fees as well as overdraft protection products and how they are marketed. The report suggests that in addition to high fees, customers who use overdraft protection products often incur higher costs overall and have higher rates of account closures.
“Consumers need to be able to anticipate and avoid unnecessary fees on their checking accounts. But we are concerned that overdraft programs at some banks may be increasing consumer costs,” wrote CFPB Director Richard Cordray. “What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm.”
All financial institutions with assets over $1 billion must report how much revenue they brought in via bounced check and overdraft fees, according to the CFPB. This year the industry brought in $11.41 billion, a 2.2% increase from 2015. Adding the estimated fees from smaller, non-reporting entities results in an annual total of $15 billion, according to the bureau.
Data for the report was largely gleaned from confidential information from a small set of large banks supervised by the CFPB. It was supplemented by responses to a CFPB Request for Information issued to the public in February 2012, and a recent study by the Independent Community Bankers of America. The report claims that overdraft and non-sufficient funds fees accounted for 61% of total consumer deposit account service charges among the banks in the CFPB report. The average overdraft fee at large banks was $34 while the average fee at smaller banks and credit unions was $30, the report found.
The report was particularly concerned with poorer customers. The CFPB notes that the average overage that triggers a fee is roughly $24 more than the average $34 banks charge for an overdraft occurrence, meaning that the overdraft fee can double the debt of a consumer. Consumers who are hit with the fees pay around $450 each year, the report noted.
“Consumers living on the edge can find themselves racking up numerous overdraft charges,” wrote Cordray. “Despite recent regulatory and industry changes, consumers with low account balances and little margin for error continue to pay significant overdraft fees.”
Despite the findings of the report, the CFPB gave no indication of any intention to propose more strict rules for financial institutions. The report did say that the bureau is preparing a new, clearer opt-in form for banks to use as a model.