Banks Reap Profits From Overdraft Fees, Consumers Lose

Consumer advocates have called for an outright ban on banks’ permitting customers to withdraw more than they have available in their accounts.

The median overdraft fee was $34 at the 33 largest financial institutions, and $30 at 800 smaller banks and credit unions in 2012, according to the CFPB’s white paper with data from Informa Research Services.

Not surprisingly, consumers who did not opt in to spend more than they had in their accounts saved more money than those who did.

The CFPB found that previous heavy overdrafters who declined to opt in reduced their overdraft and insufficient fund fees, on average, by more than $450 in the second half of 2010. The CFPB studied large banks, with total assets of $10 billion or more, and found a variety of practices in regard to transaction posting orders from high to low and opt-in requirements. Beginning in 2010, the Federal Reserve required banks to ask consumers to opt in to overdrafts.

This is a direct result of Dodd-Frank, which banned the practice of forcing people to “opt-in” (which is in itself contradictory) for overdraft protection.

This was such a scam….

The CFPB found that 61 percent of bank profits from consumer checking accounts come from overdraft and insufficient funds fees, which are prompted when customers withdraw, make a debit card payment or make or attempt to make another type of payment for more than what is available in their accounts. Only 14.4 percent of net overdraft revenue goes toward the cost of covering unpaid overdrafts.

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