Areas & Topics
Our Office LocationEdelman, Combs, Latturner, & Goodwin, LLC
20 South Clark Street
Chicago, IL 60603
E-mail Us | Chicago Law Office
Bank overdraft fees
|July 31, 2014
Overdraft fees drive people out of banking system, product should be banned
CHICAGO—Confusing information provided by the nation’s biggest banks is making it difficult for consumers to understand the real costs of overdraft and make informed decisions, a mystery shopping investigation released today by four organizations from across the country found. The four organizations—California Reinvestment Coalition of Oakland, CA; New Economy Project of New York, NY; Reinvestment Partners of Durham, NC; and Woodstock Institute of Chicago, IL—are calling upon federal banking regulators and the Consumer Financial Protection Bureau (CFPB) to strengthen consumer protections for all overdraft products and oversight of financial institutions offering overdraft.
“Recent changes that require consumers to opt in to overdraft programs were a crucial step forward, but the results of our investigation show that there is clearly more work to be done to ensure that consumers can avoid a cycle of high fees,” said Dory Rand, President of Woodstock Institute.
In a study released by the CFPB today, CFPB found that “the majority of debit card overdraft fees are incurred on transactions of $24 or less and that the majority of overdrafts are repaid within three days. Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate (APR).”
“Overdraft protection is a misnomer for a service that is expensive and often marketed on inaccurate information,” said Peter Skillern, Executive Director of Reinvestment Partners.
“Overdraft on ATM withdrawals and debit purchases is a debt trap that pushes lower income people out of the banking system. Regulators should ban this product,” said Josh Zinner, Co-Director of New Economy Project.
“The numerous conflicting and confusing messages given to the secret shoppers in more than 60 visits to bank branches should be great cause for concern for banks and for their regulators. These visits show that the $35 cup of coffee ($5 for coffee, $30 for overdraft fee) is alive and well. Overdraft opt-in rules are clearly not enough to protect consumers from this expensive product,” said Paulina Gonzalez, executive director of the California Reinvestment Coalition.
The four organizations conducted 64 mystery shopping visits at 39 bank branches in Chicago, Durham, New York City, and Oakland. Four of the largest banks by deposit size in each location were selected. In Chicago, mystery shoppers visited Bank of America, BMO Harris, Chase, and Citi. At each bank, shoppers visited two branches in predominantly white communities and two branches in communities of color.
The results of the mystery shopping show:
The four organizations urge federal banking regulators and the CFPB to:
|Big banks mislead customers about overdraft charges, new report shows|