A new survey by the Federal Deposit Insurance Corp. underscores the need for regulatory and congressional action to stop banks from artificially increasing overdrafts without a customer's express consent, a practice that unfairly strips billions of dollars annually from checking accounts.
The survey, taken of the banks the FDIC supervises, found that a majority of banks reported automatically enrolling customers into overdraft systems that impose a fee. Rules under consideration by the Federal Reserve Board would require banks to give customers the choice of opting out of the expensive, fee-based overdraft program. However, the FED rules as now proposed would not require banks to obtain explicit "opt-in" permission from their customers. The Center for Responsible Lending has urged the Fed to strengthen its final rules by requiring lenders to give customers the option to "opt-in," and, along with that option, clear disclosures of the cost to customers.
Consistent with our research, the FDIC survey also found 13.9 percent of the banks' customers paid 93.4 percent of all OD fees. It also found that customers living in low-income areas carry the brunt of most of the fees, and that young adults are charged for unauthorized overdrafts in high numbers - over 46 percent of young adult accounts were levied these fees.
Also consistent with our research, the report shows debit card transactions are the most frequent cause of overdrafts and that these purchases typically are less than the overdraft fee charged. In most cases, banks do not warn customers at the ATM machine or checkout counter if their transaction will result in this fee. The report also shows that over half of the large banks surveyed process overdrafts from largest to smallest, which can artificially increase the number of overdrafts fees incurred by consumers. This confirms CRL's research showing this practice is widespread among banks. The FDIC survey found, not surprisingly, that banks that engage in these abusive practices generate the most overdraft fees but also end up with the highest amount of uncollectible debt. Congress needs to curb these and other manipulations that result in unfair fees.
Read CRL's research on abusive overdraft lending
For more information: Kathleen Day at (202) 349-1871 or kathleen.day@responsiblelending.org; Chris Kukla at (919) 313-8520 or chris.kukla@responsiblelending.org; or Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.