The Consumer Financial Protection Bureau is starting a much-needed examination of the overdraft fees that banks charge customers who spend more on debit cards than they have in their accounts. The bureau is collecting data on how banks assess overdrafts and the effect of high fees on low-income customers, and says it will issue a reform plan later this year. But it is already clear that banks need to provide uniform, straightforward fee-disclosure documents that allow consumers to protect themselves from surprise charges.
The typical overdraft fee averages between $30 and $35 and has risen by about 17 percent over the last five years. According to Moebs Services, a research company that has conducted studies for both the government and some banks, banks earned nearly $30 billion from these fees last year and have pushed up charges to improve that haul. This means particular trouble for the 10 percent of customers, mainly low-income, who pay about 90 percent of these fees.
The Federal Reserve took a stab at this problem in 2010 when it required banks to get people to sign up for overdraft plans before charging them fees. But some banks then bullied fearful customers into signing up for overdraft protection by wrongly implying that the service would actually protect them from the charges or that debit cards might become inoperable if they did not opt in. As a result, many people continue to pay overdraft fees without adequate notice.
The new bureau, which took over regulation of consumer banking last summer, seems determined to be more aggressive in this area. The director, Richard Cordray, in announcing the inquiry, criticized a bank that deliberately buried information, requiring consumers to visit three Web pages and scroll through 50 pages of text to find fee information. The bureau’s first task should be to make the fee process fair and fully transparent.