The Consumer Financial Protection Bureau is looking at overdraft practices at large retail banks. Overdraft fees and protection programs were included in financial reform laws, but it appears not much in the way of reform has taken place.
Study finds many consumers unaware they had protection
Overdraft protection from banks is kind of sneaky; consumers used to be automatically enrolled without their knowledge, until the Dodd-Frank Act mandated banks ask customers for their consent to enroll in overdraft protection.
The trouble, according to CBS, is that a lot of people aren’t aware they have overdraft protection. The Pew Charitable Trust found in a recent survey that 54 percent of respondents who incurred an overdraft fee in the past year had no idea they had overdraft protection on their checking account. A further 37 percent of people who had overdrafted knew they had overdraft protection and 8 percent didn’t know whether they had overdraft protection or not.
One-third didn’t know their bank even offered overdraft protection until they were hit with a fee.
CFPB looking into it
Overdraft fees are a concern for the Consumer Financial Protection Bureau, according to Bloomberg. Shady practices on the part of banks is subject of a series of inquiries the CFPB is currently conducting, which aims to examine the overdraft fee and overdraft protection policies of nine major banks.
The CFPB is looking at advertising materials and customer experiences to determine if major banking organizations, which include Wells Fargo, JPMorgan Chase, Bank of America and others, are following federal guidelines on overdraft fees and protection and if perhaps tighter regulations are needed.
Moebs Services estimates that banks took in $33.1 billion in overdraft fees in 2010 and a further $31.6 billion in 2011. Moebs also found, according to the San Francisco Chronicle, that overdrafts vary between banks, as larger banks tend to charge more. Large retail banks average $35 per instance; smaller banks and credit unions average $25 per instance.
Many of the people in the Pew survey, according to CBS, didn’t know that they were opting in for overdraft protection. Even after many read the forms they signed, they believed they were opting out of overdraft protection plans. It isn’t known whether this is due to consumers misreading it or if deceptive marketing is part of the reason the CFPB is having a look at overdraft policies, according to Bloomberg.
The Pew survey also found 75 percent of respondents would rather a transaction be declined than overdraft and incur a fee.