CFPB To Take A Closer Look At Overdraft Fees

Expensive and complicated overdraft fees are pretty high on, if not at the top of, many bank customers’ complaint lists. So it only makes sense that the newly formed Consumer Financial Protection Bureau has decided to look into whether or not these fees are a fair way to keep people from overdrafting, or just a profit center for banks.

CFPB is set to announce today that it will be requesting information from banks on how they market overdraft fees and disclose the terms and conditions of these fees.

“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” CFPB Director Richard Cordray said in a statement. “We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”

Now that bank customers must opt-in to overdraft protection, banks have reacted by increased marketing, raised fee levels and interest rates, and by re-ordering each day’s transactions in such a way so as to increase the odds of triggering an overdraft fee.

CFPB head Richard Cordray will go into detail about the regulator’s plans during a live press conference at 11:00 a.m. ET., but according to the Associated Press, the areas of focus will be:

* The reordering of transactions in ways that increase costs to consumers.

* Missing or confusing information. The agency wants to make sure people understand how they can avoid overdraft fees. It will look at how the fees are disclosed and what other options are presented.

* Misleading marketing. The number of people who choose overdraft protection varies widely from bank to bank, the CFPB noted. It wants to know how marketing affects people’s decisions. The Center for Responsible Lending report noted several examples of misleading or threatening language in banks’ marketing materials.

* Disproportionate impact on low-income and young consumers. According to a 2008 study by the Federal Deposit Insurance Corp., 9 percent of checking accounts incur 84 percent of overdraft fees. The study found that nearly half of younger cardholders paid the fees.

We’ll have to wait until after the CFPB completes its probe before we see any new proposed regulations or rules that would curb or at least clarify overdraft fees.

Consumer-finance watchdog probes overdraft fees [SFgate.com]

Comments

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  1. Lucky225 says:

    Regulation E ftw, unless you have a business checking account, which I learned the hard way :X

  2. Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

    Well there’s an interesting place to start… Which can only mean one thing, sadly.

    Beginning of the countdown to Big Bank lobbying to cut the balls out from under the CFPB. :C

  3. Phil Keeps It Real [Consumerist] says:

    …..10 Years Later !…

  4. exconsumer says:

    “and by re-ordering each day’s transactions in such a way so as to increase the odds of triggering an overdraft fee”

    No, not just to increase odds, but to cause more of them. Remember, the bank is reordering them, meaning they are looking at them all at once. They know whether or not you will trigger an overdraft, and know whether they will ‘approve’ an overdraft based on the total. There exists no other reason to reorder fees, other than to trigger multiple overdrafts. The idea that it might authorize a large payment but reject subsequent small payments (the lie the banks have told us) or that it might protect from an overdraft altogether is categorically false. Remember, they have not processed these charges and can see them all at once. There is no uncertainty for them regarding which will do what.

    Reordering of charges is, was, and always will be an overtly hostile act.

    • Nigerian prince looking for business partner says:

      I suspect their argument is that they reorder them in order for larger, and theoretically more important payments (mortgage, car payment, health insurance…), will clear.

      • exconsumer says:

        I thought I just explained how that’s entirely false.

        They can see all the transactions they are reordering.

        They know whether or not the final amount will trigger a rejection before any reordering can take place.

        • K-Bo says:

          What do you think they should do in the situation that they see the overall transactions will trigger an overdraft?

          • exconsumer says:

            I prefer them to reject that transaction. I’ll deal with the fallout.

            • K-Bo says:

              I agree, but that still doesn’t make the fact that many people would be more upset about their rent bouncing than their cup of coffee false.

              • exconsumer says:

                Maybe, but think about it for a minute:

                If they can reorder transactions, it means they can see them all.

                If they can see them all, then they can add them together.

                If they can add them together, they know whether or not reordering them will protect a check or payment from bouncing.

                But they will reorder payments anyway, even when they know there is no risk of a bounced check (which they will always know . . . see above). So when you ask why they reordered your transactions and they reply with “To protect a large and important payment,” they are only telling the truth if one of those payments actually bounced.

                The bank is playing on the idea that there is some mystery about which transactions will or won’t bounce, but remember, they are looking at a SET of transactions, not just one at a time, and reordering them. They know beforehand, and are not protecting you in any way.

                • K-Bo says:

                  I’m gonna guess always reordering is just a matter of keeping the process consistent (and since it’s all done by computer, keeping the amount of code that has to be QA’ed to a minimum ) at all times, as there is nothing to lose or gain by doing it in situations where there won’t be an overdraft.

                  • exconsumer says:

                    That’s a pretty convoluted excuse on behalf of the banks, and I don’t think it’s accurate.

                    First off, the simplest code would be one that did not reorder anything at all.

                    And “If amount X does not trigger a bounce, do not reorder” is not hard to describe mathematically or in code. These institutions run massive websites and keep track of investments and calculate interest and exchange rates and their profitability counts on it. They are overwhelmingly capable of calculating whether or not a transaction will bounce. In fact, they have to be, or they would not be able to calculate whether or not there would be an overdraft in the first place.

                    • K-Bo says:

                      Not hard to describe, but also not needed. Why add complication without need? There is no valid reason to process them in different orders based on the situation. The fact they didn’t take that extra steps does not show that they are lying (or making false statements ) about why they do them in the order they do. Just shows that there is no advantage to them or anyone else to do them in any particular order when they aren’t going to bounce. If there was an advantage to them, sure they would write the extra “If amount X does not trigger a bounce, do not reorder” code in a heartbeat, but simple as it is, it serves no purpose, so why would they do it?

                    • exconsumer says:

                      “There is no valid reason to process them in different orders based on the situation.”

                      So the bank should not reorder transactions? You and I are in agreement.

                    • Cat says:

                      “the simplest code would be one that did not reorder anything at all.”

      • Conformist138 says:

        BoA tried to sell me that lie about making sure large payments don’t bounce. My response was, “But… you covered everything. You didn’t reject or bounce anything. How did this help me again?” Got silence for an answer.

        Re-ordering the charges generally won’t cause any overdrafts, but it can take a single overdraft (lame, but easy damage control) and turn it into 3 or 4 (financially disastrous for people forced to live paycheck to paycheck).

        • K-Bo says:

          It’s been a long long time since I bounced a check (or wrote a check for that matter) but when I did, the store came back to me for the money, the bank charged the fee without covering it, then the store charged another fee. If they are going to cover it, I agree, the largest first is bull. But if they aren’t going to cover it, I do prefer that my big bills get taken care of.

          • K-Bo says:

            Make that ” But if they aren’t going to cover it, I do understand the idea that big bills get taken care of first.” I’d still prefer to deal directly with the one that bounced than with 5-6 other.

    • lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

      I ran into this many years ago with my first checking account. Long before direct deposit, I went to the bank, cashed my check, and put money into checking and savings. At 21, I hadn’t read all the fine print, and didn’t realize there was a 2 day hold on cash deposits.

      I had written 4 or 5 checks, 1 large and several small. Instead of clearing the small ones and bouncing the 1 large one, they cleared the large one and bounced the small ones, tacking on a fee for each one. What really sucked is that they had my actual cash money, but did not credit it to my account until after the checks were bounced, so I was in the hole.

      I learned my lesson, brought the account up to zero, and closed it. I found a new bank.

  5. Cat says:

    Opt out of the overdraft shenanigans.

    The only overdraft I have is a huge line of credit at my credit union, and “courtesy” overdrafts at several others. I don’t even let them overdraft from my savings.

    • yurei avalon says:

      Agreed. My bank could not understand why I did not want my savings linked to my checking in any way, shape or form.

      Because savings are for saving, checking is for spending and if I don’t have the money to spend, then I don’t want to spend it. And I refuse to allow you to take it out of my savings if I overdraft for a “convenience fee”.

      They tried all these scare tactics too when the new regs went into effect to try and convince me to not opt out of overdraft protection. Same with my credit card issuers. They’re always trying to sell me on job loss protection etc. So annoying. And when I mention my always 0 balance I get silence or a blank stare and a “Well it might not always be that way.” Well if that’s the case kids, I can call you when it does actually happen and I want it. Stop calling me every night at dinner time.

  6. StarKillerX says:

    “Missing or confusing information. The agency wants to make sure people understand how they can avoid overdraft fees”

    Well personally I avoid them by not overdrafting my account. Didn’t realize that this was confusing or that I should need the bank to tell me this. lol!

    • exconsumer says:

      Couldn’t be further from the point. Overdraft fees aren’t something that happens to the bank out of nowhere. It is something they choose to do at the expense of the account holder, and, more importantly, against their will. No one wants the ‘ability’ to overdraft. Only by forcing or tricking customers into the opt-in can banks actually do this. When explained clearly to people: “Do you want the bank to cover transactions that exceed your balance and charge you extra for it” . . . everyone would say, “No thanks, I’d rather the transaction just be rejected.”

      • StarKillerX says:

        And why exactly can’t people just avoid making transactions that exceed their balance?

        • crispyduck13 says:

          Because some people live paycheck to paycheck. Some people also have business accounts at banks who purposefully delay merchant processing deposits in order to cause a slew of overdrafts. There are so many circumstances which make this issue a real problem for some people.

          No one here is saying overdraft fees should not be done or that you should run your account into the red and not expect bad shit to happen. The issue is that banks are purposefully altering the time/space continuum to increase the amount of transactions bounced which puts more overdraft fees into their coffers. Are you seriously ok with that just because it does not directly affect you at this point in your life?

          • NebraskaDan says:

            Are you aware that banks don’t get paid on check deposits for up to a week. Usually like 3-5 days now. Getting faster with technology, but still.

            Banks literally make 95% of deposits available either same day or overnight. Do you understand what kind of risk that is to a business? Banks have done that due to consumer demand. So guess what? When a bank holds a deposit for really any reason at all, it’s to make sure they are going to get paid on a deposit. You gotta deal with it.

            I know I sound like a bank shill, but the amount of just flat wrong information being tossed about is really ridiculous.

            • crispyduck13 says:

              Yes I understand that. That is why that same bank will only allow the first $250 of any ATM deposit to be accessed immediately, the rest after 3 days. Personal/unknown check deposits are not equivalent to recurring merchant processing deposits. Not even close.

            • exconsumer says:

              Electronic bank transactions can and should take place instantaneously (or as close to it as electronically possible), not my problem if they delay things deliberately in an attempt to generate fees.

        • exconsumer says:

          They can and do, for the most part, with some exceptions. But I agree with you that people should not spend beyond their means/income/balance. So it makes sense that we should support a policy that reflects our ideals; and ask banks to simply reject any transaction rather than allow an overdraft and subsequent fees. Our ideals are upheld, banks don’t have to cover money they don’t posses, and people get what they want.

          Glad we seem to be on the same page.

        • Such an Interesting Monster says:

          Because in many instances it’s not in your control nor your fault. Like when a check you deposit clears and then somehow bounces 10 days later. Or a cash deposit you make is mysteriously “held” for days without explanation causing your rent check to bounce. Or when the bank plays loosy goosy with your online bill payments and automagically reassigns them to an old account that had no money in it to the tune of $440 in bounce fees (not to mention another $400 in late payment and returned check fees from payment recipients).

          Banks don’t play fair. Anything they can do to screw you they will, cause they know 99% of the time they’ll get away with it as consumers have absolutely zero recourse.

        • tcm147 says:

          I had a situation where my dog was ill. Took him to the vet they kept the dog overnght and ran a series of test (blood work, xrays) picked the dog up and paid them just over 400. The day after that had to rush the dog back and he was put to sleep. I explained that I only had 1/2 the amount but was a long time customer they said no problem give us a check and we will hold it until the specified date 1 week. Not only did they run the check causing a return chek fee but they ran it twice 70 dollers. Then THEY charged me directly to the bank another 30 for the returned check fee. This in turn caused another series of payments when I got paid to return. When I got notice I called the vet and explained the huge problem them running the check early caused. The did nothing. So yes great idea to never bounce anything but it happens

        • HogwartsProfessor says:

          It’s easy to do it when the stores or companies you’re paying make a mistake. There have been numerous stories on here where someone paid with something for their check card or whatever and the store either fat-fingered the amount or it accidentally ran more than once. If you’re out of groceries but you get paid tomorrow, and you only buy what you can pay for but they do this, then BING! Overdraft.

        • Bionic Data Drop says:

          Because 3rd grade math is hard.

      • NebraskaDan says:

        Speaking of catagorically incorrect….

        I am an assistant branch manager at a top 10 sized bank, and I speak from experience when I tell you that people definately opt-in knowing the consequences. I will actively tell them don’t opt-in. I stop just short of begging them not to opt-in. I let them know I won’t refund a dime on an opted-in account. And still….they do it. I just think some people need to not have bank accounts, for their own sake.

        • exconsumer says:

          You’re right. The overdraft system is only attractive to people who don’t understand it. Let’s agree to support the elimination of the overdraft system altogether and ask banks to just reject the transaction. The bank wouldn’t have to cover those costs, the responsible majority get what they want, and you’d no longer have to beg the irresponsible persons you describe from doing something you know will damage them.

          No overdrafts FTW!

    • craftman says:

      In 10 years we’ll all have a “right” to overdraft from our banks.

      Which means a “right” to a free line of credit, with no downside or negative incentives.

      Which means banks will just stop signing people up for accounts without a large deposit or collateral.

      Which means the CFPB will pass a law saying we have a right to be approved for a savings/checking account no matter what.

      Which means….?

      • exconsumer says:

        No one wants the ‘right to overdraft’ and you’ll not find anyone advocating for such in this or any article. What people want is the right to OPT OUT of overdrafting altogether, to just have their transactions rejected (as they were in the days of yore).

      • Solkanar512 says:

        I think you’re just making things up so you have something to complain about, but that’s fairly common on this site.

    • Conformist138 says:

      I agree, but only to a point. I had a problem with overdrafts for awhile (I was younger, go figure) and the real problem was being poor + reordering charges to maximize fees. It dug the hole 2, 3, even 4x deeper than it would have been if they’d left the transactions alone. Living on $1000/mo and suddenly being on the hook for $150 in fees is really hard to work around, especially if you have to wait several days or longer for your next paycheck. Sometimes the hole gets too deep and it turns into a nasty cycle. Getting out is possible, but many face either losing hundreds to the bank or falling behind on rent or utilities.

  7. crispyduck13 says:

    “The reordering of transactions in ways that increase costs to consumers.”

    This is quite simply theft by deception. I have no goddamn idea why banks are allowed to operate this way, out in the open, like it’s totally fine. My husband’s bank does it to him constantly, everytime he racks up a shit load of fees because of it he questions the bank manager and she gives him the same response every single time: “you should manage your money better.”

    Fuck this. Fuck all of this. If a private citizen did this they’d end up in jail or civil court. Why do banks get to follow a different interpretation of law? I hope the CFPB changes this, I really do.

  8. frank64 says:

    I look for a bank that has a line of credit to attach. They only charge an APR of 16% which means it is just a few cents if I ever go over. Some will automatically transfer in from savings, but many of those charge $5 per transfer, that is free money to them, I like the LOC much better. You have to look a bit find a bank that has it, but not to hard.

    • Cat says:

      16%?? My credit union is 9.9%.

      Unfortunately the recently added a $3 fee if THEY move money from my LOC to my checking, but that rarely happens. If things are that tight, I usually can see it coming and transfer what I need myself online with no fee.

  9. KidRey says:

    What I love about my bank (Wells Fargo) is that I opted out of the overdraft protection, but if I need gas, all I need in my checking acct is a couple of bucks and I can get a full tank without incuring a penalty! I just deposit on monday and its paid for then (theyre even willing to let me cash a check even if I’m overdrawn- without taking funds from the check to pay my outstanding balance). I’ve only used this twice, but it’s been huge for me in tight situations and it’s also greatly reassuring. Not a big fan of banks, but this is a service(loophole?) I’m greatful for.

  10. Buckus says:

    In before the “Don’t spend money you don’t have” crowd…

  11. coffee100 says:

    “Fuck the poor!”

    The battle cry of every bank.

    • Phil Villakeepinitrreal says:

      I thought that was the mating cry of the banks, because they’re bending you over…

    • Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

      I would be a liar, if I pretended to admire,
      The Red-Light-Windshield-Cleaning Empire that you’ve built;

      But my heart is good,
      It’s not a thing of stone or wood,
      I’ll give you fifty cents to take away my guilt…

  12. buddhalite says:

    How about – just don’t try to spend money you don’t have!

  13. Conformist138 says:

    I

    • Conformist138 says:

      What the… Huh. That certainly was longer than a single character before I pressed Submit.

      I was gonna say my credit union’s overdraft options are actually really great. You can go all-in, but I opted in to their middle protection. It covers checks and autopaid bills, but nothing else. I haven’t had an overdraft fee in many years, but I like knowing that the rent will be paid in case a mistake is ever made.

  14. Cat says:

    Of course, the CFPB (Corporation For Public Broadcasting) is looking into this, because the government doesn’t have an agency to do this.

    Is this going to be a Ken Burns film?

  15. smartmuffin says:

    It’s pretty easy to anticipate and avoid overdraft fees by not overdrafting.

    Also, “profit centers” are not illegal. The banks are fully entitled to profit should you choose to not follow the fine print you voluntarily signed.

    Next.

    • crispyduck13 says:

      I don’t think I’ve ever willfully wished a negative fate to befall someone I’ve never met in person (politicians aside). However, you’ve succeeded in popping my cherry: I hope you are poor someday.

    • ARP says:

      Exactly right- if you don’t agree with the fine print, you just shouldn’t have a bank account, or a cell phone, or a car, or an apartment, or anything else that exists in the modern world. You have a choice- to be very poor or live like a caveman or sign what they tell you sign. Freeeeedooooom!!!

      /s

    • Such an Interesting Monster says:

      And when the bank decides you haven’t paid enough in fees and purposefully starts messing around with your deposits to make sure you start paying? Then what genius?

      It’s ok, I’ll let it pass this time. Obviously the lack of oxygen way up there on your high horse is having a profound impact on your ability to say things that aren’t retarded.

      • smartmuffin says:

        If you make a savings buffer, it doesn’t matter how they order your transactions. I can’t even remember the last time I had less than $1,000 in my checking account. Not because I’m filthy stinking rich, but because I like to be prepared for some time of emergency expense.

        Even when I was just starting out in the job market, on my very first paycheck I created a $100 buffer for myself … because I was paranoid about overdraft fees. I suppose I didn’t *have* to do that. I could have wasted a lot of time and effort calculating which day which transactions would process and living with the stress of having close to a zero-balance the whole time. Then, when the emergency struck, I could yell and scream about how the banks, who provide me the valuable service of convienent storage and access of my money, are “screwing me over.”

        • Evil_Otto would rather pay taxes than make someone else rich says:

          And when the bank makes an error (or some other unforseen not-your-fault occurrence happens) that suddenly overdrafts you through no fault of your own, what then, smart guy?

          Nevermind that a lot of people would LOVE to be able to build a buffer like that, but don’t make enough to do it? Despite the fact that they have cut expenses to the absolute bone? These people exist. You can turn off your cable, cancel your cell phone, and so forth, but you still have to pay for food and shelter. And with minimum wage being what it is (and rents being what they are), some people just can’t do what you’re advocating?

          Congratulations on being able to do it. Don’t belittle people who can’t.

        • Such an Interesting Monster says:

          Yeah, you missed the part about “no fault of your own”. If I bounce a check through my own stupidity I don’t blame the bank, I blame myself. But you bet your ass I’m going to blow a gasket when the bank screws of, or worse, targets me, and expects me to pay them anyway along with any fees from my landlord, credit card company, or utility.

          And I’m really supposed to tie up $1000 of my money sitting in a non-interest-bearing checking account to protect myself from shady bank practices? Um, no.

    • exconsumer says:

      Placing a bear trap on an open sidewalk with a sign “Warning: Bear Trap” . . . and then coming around every so often to charge people money to let them out . . . is an antisocial thing to do, and we wouldn’t allow anyone to do it. Yes, it’s a profit center of sorts for it’s owner and operator, but it is exclusively to the detriment of everyone else and shouldn’t be. You wouldn’t settle for a larger warning sign, and you wouldn’t settle for a duller set of teeth on the trap, you’d want the trap gone. If the owner wants to make money, he’s free (and always was) to sell me something I want and profit from that. . . . we should forbid him from placing traps and charging us to get out of them.

      Overdrafts shouldn’t exist. Just reject the transaction.

    • yurei avalon says:

      I have $350 in my account. I walk into a bank and deposit $400 cash on a weekday. Bank policy (which is sitting there printed out on the counter right in front of me) states that cash deposits are made available the same day. I go home, log into my online account and see that my available balance is $750. I then go buy airplane tickets for $700. Then I go out and buy several small items at several stores totaling $30. I should still have a positive balance in my account of $20.

      But guess what? Bank decides to be a douche and re-order the transactions to their liking, causing an overdraft when there shouldn’t be any. They run the $700 purchase first followed by the $400 deposit and then the other small purchases causes multiple overdrafts.

      Bank tried to do that exact situation once to me. I happened to log on to my account a few hours after making the purchases and saw that my account was showing itself in the negatives. A phone call and a few very stern words later and things magically went back to being chronologically ordered as they should be, and it never happened again.

  16. MikeVx says:

    I am very careful to avoid getting into the situation of overdrafting. On rare occasions I will screw up a number somewhere, and think there is more money in the account than there actually is. This only tends to be a problem if my error is large enough to have an effect before reconciling the statements catches the error. Most of the time my errors have my register balance being lower, rather than higher than it should be.

    My major means of limiting the overdraft problem is by the method of avoiding the common-but-stupid behavior of having a debit card attached to the account that I pay my household bills out of. I have two debit cards, each has an independent account behind it at a completely different bank. All money to be sent by debit goes into those accounts, and if a merchant does something stupid, or if I fumble-finger a number, the consequences are limited to the particular account. Nothing I do with my debit cards can have an impact on my household bill account.

    My major method of limiting overdrafts on the debit card accounts is to treat plastic as dangerous. I only use it when doing on-line purchases, purchases where the amount of cash is impractical to bring in, or for those “oops-I’m-out-of-cash” moments, which tend to be rare.

    My household account and one of the debit cards have OLOC as buffers, so that when I do overdraft, it costs pennies. My largest such expense was about seven cents in interest. The other debit card does not yet offer OLOC. I haven’t overdrawn that account yet.

  17. voogru says:

    Lets see, they’ll ban overdraft fees.

    And banks will just not allow super low income people to have bank accounts in the first place, and charge their remaining customers a monthly fee to cover the costs of running the account.

    And no, it’s not free for the bank to manage your account. They have to spy on you to make sure you’re not a terrorist. Thank the Patriot Act for that one.

  18. SeanPatrick says:

    The reordering of transactions in ways that increase costs to consumers.
    – Stop writing bad checks. Why do you think it should be the responsibility of the bank to figure out how you want your illegal checks to be processed?

    Missing or confusing information. The agency wants to make sure people understand how they can avoid overdraft fees. It will look at how the fees are disclosed and what other options are presented.
    – If you attempt to spend more money than you have, you are very likely to incur an overdraft fee. How is this confusing?

    Misleading marketing.
    – Again, how are people confused. This is a service that you absolutely do not need. The fact that banks are even having to account for this is ridiculous. If you have $5, don’t try to spend $10.

    Disproportionate impact on low-income and young consumers.
    – Why is this surprising? What would the solution be? Free spending for low income and young people? Write as many checks as you want. Pay us whenever you feel like it.

  19. Fineous K. Douchenstein says:

    My favorite shenanigans from banks that I haven’t personally experienced, but have seen in action is that they process the /checks/withdrawals before processing the deposits, so that even if you have them all occurring on the same day, your checks bounce while they’re holding the money in their fists.

  20. soj4life says:

    Overdraft fees are one of the largest and most important streams of revenue for banks.