CFPB Checking Out The $31 Billion Banks Charged In Overdraft Fees

If banks had boots, mayhap they’d be quaking them right about now: the Consumer Financial Protection Bureau is on the case, reviewing nine U.S. banks over their practices to see if they’re on the up and up when it comes to charging overdraft fees.

Regulators gave Americans more power over managing overdraft protections for the checking accounts two years ago, notes Bloomberg, and the CFPB just wants to make sure if that crackdown on banks was good enough.

The CFPB will reportedly determine by the end of this year whether new rules are in order for banks including JPMorgan Chase, Wells Fargo and Bank of America Corp. The inquiry will look into how those institutions are pushing customer to enroll in overdraft programs, by checking out online and mailed marketing material and the scripts used by customer service representatives.

If any of that stuff is confusing to consumers, the CFPB probably isn’t going to like it. Consumers could benefit from stricter rules, but banks will likely groan over anything that will threaten another of their revenue streams. Banks charged customers $31.6 billion in overdraft fees last year, down from $33.1 billion in 2010.

The size of the overdraft fees will also be probed, to see if banks are justified in what they charge. Many large banks levy $35 per overdraft, while smaller banks and credit unions routinely charge $25. And since around 15 million of us overdraw our accounts 10 or more times a year, that’s a nice chunk of change for those financial institutions.
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Nine U.S. Banks Said to be Examined on Overdraft Fees [Bloomberg]

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  1. hansolo247 says:

    I know many who overdraw intentionally, and then balk at the fees.

    I can’t believe the government wants to enable this behavior.

    • PunditGuy says:

      The problem was the banks were reordering transactions in a way that guaranteed the most overdraft income. Under the guise of protecting consumers by making sure their “most important” checks cleared, they’d clear the largest check possible and then overdraft a bunch of smaller ones, rather than just pay in the order received.

      • Hi_Hello says:

        i say, charge an overcharge fee base on a % of the amount and on per overcharge.

        that way, re-ordering doesn’t matter.

      • Bsamm09 says:

        I see the logic but what is the order received? If I write my landlord a check on the 1st, then write a few smaller ones on the 7, 8 and 9th but they are all received on the same day due to whatever reason, which gets cashed first?

        Or the later checks are received on the same day but come in the morning while the rent check gets there at noon. They aren’t processed until 2:00 so how do you order that?

    • Lyn Torden says:

      What’s wrong with the behavior if banks are making money on it?

  2. homehome says:

    I’m proud to say I haven’t overdrawn my account in 3 years. Not bragging, but I was struggling for a while LOL.

  3. xantec says:

    I must say that I really like how INGDirect handles overdrafts. They issue you a limited line of credit and then charge a nominal daily fee each month for however much you went over (if at all). For the times I’ve needed to use it the interest on my account has covered the fee.

    • qwickone says:

      +1 There’s no reason banks couldn’t do this for many customers.

      • Hi_Hello says:

        I can see why banks wouldn’t want to do it. ING does a credit check to determine your credit line for the overdraft. I bet most banks’s customer who overdraft like crazy, wouldn’t qualify for the credit line.

    • Derigiberble says:

      This is the smart and fair way to do it, because the overdraft really is just a small cash advance from the bank.

  4. Blueskylaw says:

    ($35+$25)/2= $30 average charge
    $31,600,000,000/$30=1,053,333,333 billion overdraws
    312,000,000 population / 1,053,333,333= 3.37

    Essentially every man, woman and child in America overdrafts their account 3.37 times per year.
    The financial numbers here are truly staggering and I would bet everything I own that the banks do everything in their power to keep this perpetual lottery of theirs going.

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

      And it’s even more staggering because you’d have to take into account not every person has a checking account (especially children), and not all the people who have accounts overdraw them. Wow.

  5. VintageLydia says:

    We got caught with overdrafts due to reordering of debits and deposits. We’d deposit cash or a check, make sure it posted a day or two later, then run errands. We get hit with a fee and check the account again and the debits would be posted BEFORE the deposit! This happened twice. We complained and got the fees reversed both times (and both times getting lectured about keeping better track of our account. Um, hello. We weren’t the ones who reordered our deposits and debits!) Needless to say, we no longer bank with BoA ;)

    • Awesome McAwesomeness says:

      We are with BOA and now, they always do withdrawls in the order they are received. They also always do deposits first, then withdrawls. That has not always been the case, and I had to have a throw down with them about it years ago. I haven’t had a problem with them in years.

    • Fineous K. Douchenstein says:

      Bank of Scamerica.

  6. Awesome McAwesomeness says:

    What happened to personal responsibility? People know how much the fees are, then overdraw their accounts anyway. When I was a kid, they would come after you for writing hot checks. It was a criminal act to overdraw your account. Now, they charge a fee, that doesn’t seen unreasonable (it should be big enough to discourage people from spending money that they don’t have.) I can understand the problem if the bank is being scammy by reordering deposits and withdrawls. That is different than people just plain overdrawing their accounts. But, if you are spending money that you don’t have, that is essentially stealing and a hefty fee is deserved. The government needs to keep their nose out of that part.

    • xantec says:

      Agreed. People need to learn responsibility with their money, and suffer the consequences of mismanaging it. The last thing we *need* is more government bureaucracy telling absolving us of being irresponsible. If you can’t handle the overdraft fee then don’t write checks for more money than you have.

      As for debits and deposits being re-ordered, it should be common knowledge that until a deposit shows in your statement and is no longer being held that that money is not available for use. Therefore, don’t try to spend it before you have it.

    • loggg says:

      Personal responsibility? Why can’t the bank just refuse the debit? Why must the bank create this situation by honoring a check that results in an overdraft? If the bank didn’t step in, the issue would be between the customer and the creditor.

      You bank with BoA, and you speak of personal responsibility? Even after they tried their little reordering stunt on you, you’re still with them? By doing business with them, you are responsible for helping to enable BoA’s reprehensible behavior.

      • xantec says:

        I hope you are just trolling. I’m not defending everything banks do, but allowing account overdrafts is simply a way banks try to make money. Making money is what any healthy, publicly traded company should try to do.

        Someone that chooses to take advantage of the overdraft services that their bank provides should not be complaining that it costs too much later. If they don’t want to pay the fees then they should not spend more then they have, opt out of any overdraft services or change to a bank or other financial institution with less severe costs for the service.

  7. HeatherB says:

    My favorite scam is the BOA one where you can link your savings account to your checking account so they will draw money out of savings in an overdraft scenario. Sounds great right? Yeah until I realize that because I opened my savings account years ago in a different state, they couldn’t link the two because of interstate banking regulations. Total crap. Thank God I read the fine print and didn’t learn that lesson the hard way. They didn’t mention that one on the phone.
    So, now I am supposed to close the old savings account and open a new one in the same state. WHO CARES what state I opened the savings account in 15 years ago??

    And they wonder why we hate the banks.

    • Extended-Warranty says:

      Are you serious? You mean if you don’t have the money to pay for something you bought, they take the money that is owed to them? WE HAVE THE RIGHT TO NOT PAY FOR ANYTHING.

    • Press1forDialTone says:

      ToDo List for Heather:

      1) Quit whining about interstate banking regulations, without them (and they’re
      much much much older than you) you’d implode at the scams that the banks
      could perpetrate on you legally.

      2) Open a new linked savings account with your checking account at BofA, take
      a bit of money out of your older savings account in the other state (don’t close that
      account since it means so much to you) and put it in the new BofA savings account
      to cover your needless overdrafting.

      3) Forget number 2). Close all of your accounts everywhere and move all the money
      into a no-fee account at your nearest credit union. Then be amazed that you can
      actually live your life free of whining.

  8. jessjj347 says:

    Does anyone know how overdrafts work when one has both a checking and savings account at a bank? Even if one opts out of overdraft, will the bank still use money from the savings account to cover an overdrawn checking account? Hoping that is not the case…but I can’t find this information anywhere. TIA.

    • jessjj347 says:

      whoops someone commented above me at the same time. I looking for information on other banks besides BOA though

      • HeatherB says:

        Varies by bank. BOA you have to opt into that service. My guess is that they will not automatically link checking and savings because then they lose out on the revenue stream of overdraft fees. YMMV I suppose.

  9. budanatr says:

    I was on vacation and my BBVA Compass account was overdrawn by .01. They charged me $38. Then they proceeded to charge another $38 the next day. I called them and told them that I would pay the first $38 but not any subsequent fees. They refused my offer and proceeded to keep charging me $38 per day until the fees came to about $780. Then they closed the account and turned it over to a collection agency. I called them every day and offered to pay the first $38 and they refused every day.

    I am still trying to pay the $38 but they still refuse.

    Interesting system.

  10. Mike says:

    Really, the only time an overdraft should apply is on a paper check that was not electronically submitted. Many institutions submit paper checks electronically at the point of sale; those should be rejected. All electronic overdraws should be rejected. The only reason they allow them is to collect fees.

  11. pgr says:

    Very simple banks – don’t pay overdrafts and don’t try to fuck your customer to pay the CEO’s huge undeserved salary.

    If someone writes a bad check too bad, it’s the person who received the check who deserves to be compensated for it not some big bank. In these days of mostly all electronic checking it costs banks absolutely nothing for a bak not to pay an overdraft. They are worse thieves than the ones who walk into their “institutions” with a gun demanding money!

  12. Lyn Torden says:

    I’ve always wondered what would happen if some small startup bank offered to take SMALL accounts with fees at just 1/4 of what the big banks do, and advertise as such, too. If these fees are a big revenue source (and not just covering operating losses caused by overdrafts), then this could start a war.

  13. AllanG54 says:

    So, I guess there are 15,000,000 people who can’t add and subtract or just write checks because they think the money will magically appear in their accounts. They shouldn’t be allowed to have checking accounts anyway.

    • Aliciaz777 says:

      No, it’s called life and doing what you have to do to survive. Millions of people are living paycheck to paycheck and are barely getting by each week/month. A few months ago my our only care broke down and needed to be fixed. Without a car neither my husband or I would be able to get to work (no, there’s no bus around where I live) and if we can’t get to work we can’t make money. So, we had to spend our grocery money on getting our car fixed. When all EA’s said and done we had $30 left in our bank account and it was another 7 days until we got paid again. We had to overdraw our account in order to feed our family.

      You need to get off your high horse. You don’t know the situations of the 15,000,000 people mentioned in this article. Sometimes, people HAVE TO overdraw their accounts or else guess what? Rent doesn’t get paid, the electricity gets shut off, or their children don’t eat. Not everyone has the luxury of having an extra couple thousand dollars in a savings account to fall back on.

      • voogru says:

        We need to protect those people.

        From themselves.

        It’s better for the power to go out for a week, than the consumer to be charged an overdraft fee anyway.

        We’re from the government, and we’re here to help.

  14. voogru says:

    Banks will just not allow people to overdraft. Enjoy your mortgage check being bounced for a lack of $15, and then getting hit with an even bigger fee.

    Let’s not forget that banks will just raise fees elsewhere.

  15. Truth-Teller says:

    Since it is very rare that comments list the mathematics of the Annual Percentage Rate, I illustrate the shocking, mathematically-true APR on overdrafts. Consumer Groups as CFA and CRL list their excellent research on fees of various banks’ overdrafts. The following uses some fees in those examples to calculate the mathematically-true, compound APR. On an overdraft over $5 the fee is $35 payable (plus the overdraft) to be paid in 6 days or an additional $25 fee on the 7th day. The mathematically-true, compounded APR is on the 6th day 1,020,248,946,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000% (usually written 1.020248E 60%), calculated as (using Excel mathematical notations: add +, subtract -, multiply *, divide /, and compound ^) (((1+(35+5.01)/5.01)))^(365/6))-1)*100. On the 7th day it would be 5.29193E 61%, calculated as ((((1+((35+25+5.01)/5.01)))^(365/7))-1)*100. Unfortunately, apparently, no APR has to be expressed.

  16. JGKojak says:

    To all the self-righteous posters who claim they never overdraft, the fees are what you get for being irresponsible, etc.

    1) This is about the size of the fees. $35 or more is disproportionate to either the cost of processing the overdraft or even the punitive purpose of such. Likewise, there is no reason fees shouldn’t be partly based on the amount overdrafted, since an overdraft is essentially a loan.

    2) This is about how banks process debits/credits. They have formulas that make it confusing and all but impossible to track things in tight circumstances. Yes, I know you should keep track of every penny you have, but 30 billion is a lot for people making mistakes.

    3) Shit happens. Unless you have a cushion in your account, shit happens. Husband goes to grocery store, wife has a flat tire and pays for the tow with the debit card. The kid gets sick and goes to urgent care. $35 is a lot to pay for these kinds of mistakes.

    4) Security. I don’t know about you, but I only keep so much in my checking account, because that’s what gets cleaned out if someone uses my debit card #, etc. Savings are much more secure. So I know I’ve had several thousand in savings, and nearly bounced something because of an unexpected purchase (i.e. plumber charges more than anticipated). Again, yes, I should pay more attention, but $35 seems excessive to ding me for neglecting to move money from column A to column B.