Bank Overdraft Fees Still Haunt Consumers

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NEW YORK (MainStreet) – Remember Dodd-Frank financial reform and the promise that new federal regulations would curb bank overdraft fees? Well, not so much.

The Consumer Federation of America is out with a new report (PDF) finding that despite new rules that say banks must get permission from customers before charging overdraft fees, such fees are still on the rise. The group says that such fees at 14 large banks average $35 per overdraft, with some as high as $37 per overdraft.

In addition, some banks have readjusted the number of overdraft fees they can charge on a daily basis. BB&T, for example, hiked its daily allotment from four overdraft charges to eight and Regions Bank upped its overdraft fee limits from four to six, the CFA reports. One big bank – TD Bank (Stock Quote: TD) – actually reduced its overdraft daily limits, but only from six overdrafts to five.

“Bank overdraft fees at the largest banks remain steep, ranging from $33 to $37, and far exceed the typical $20 debit card overdraft,” stated Jean Ann Fox, director of financial services for CFA. “Some banks have hiked the number of overdraft fees consumers can rack up in a single day to as many as 10, costing consumers as much as $370 in just one day.”

The groups says that overdraft fee policies – even with the government rules in place – are still stacked heavily in favor of banks.

“One year after the Federal Reserve required banks to get customers’ permission to charge overdraft fees on debit card transactions, fees charged by banks have not dropped for what amounts to short-term loans,” the report states. “While some banks have modified the order in which they process payments from accounts, most banks continue to pay the largest transactions first, which can drive up overdraft revenue at the expense of struggling families.”

Some other highlights from the CFA study:

  • Two-thirds of big banks “pile on” multiple fees if customers are late in paying back overdraft fees. Some banks are charging as much as $36 extra in those instances.
  • Some banks have abolished overdraft fees. Citibank (Stock Quote: C) never had them, and HSBC (Stock Quote: HBC) no longer allows overdrafts at the point of sale. Bank of America (Stock Quote: BAC) allows overdrafts at the ATM, but not at the cash register.
  • Banks are manipulating the order of processing payments from accounts, and that results in more fees for consumers  who struggle to make ends meet, the CFA says.  In 2010 almost all major banks processed payments largest to smallest or reserved the right to do so. Some banks, like bank of America, have reversed that policy, but most haven’t, says the CFA.
  • The highest cost of a $100 overdraft loan repaid in two weeks, if computed as a closed-end payday loan, is a whopping 3,259% APR at Fifth Third Bank, 2,799% APR at RBS Citizens, and 2,574% APR at PNC Bank.
  • The CFA says there “is no legal limit to the size of overdraft fees, the number of fees banks can charge, or the length of time consumers have to repay these loans.”

The CFA says that federal regulators should stop banks from “manipulating" overdraft fees, and should be prohibited from charging overdrafts triggered by debit card purchases.

“Consumers need stronger protection from abusive overdraft fees and practices,” Fox added.  “Regulators should prohibit banks from manipulating payment processing order to drive up overdraft fees and should require banks to offer consumers the lowest cost overdraft coverage for which they qualify. Banks should be prohibited from charging for overdrafts triggered by debit cards that can be denied at no cost to consumers."

Consumers who haven’t opted out of their bank’s overdraft program should contact their banks straightaway. It could be the first step in saving hundreds of dollars per year in fees that can easily be avoided.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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