Agency: Opting for overdrafts means higher fees

  • By Marcy Gordon Associated Press
  • Tuesday, June 11, 2013 1:54pm
  • Business

WASHINGTON — A U.S. agency says consumers who opt for overdraft coverage on their checking accounts pay higher fees and are more likely to have their accounts closed than those who decline it.

A report by the Consumer Financial Protection Bureau released Tuesday says it’s hard for consumers to anticipate and avoid overdraft charges. It found that the cost for “opting in” for overdraft coverage varies widely from one bank to the next.

Customers of some banks paid average charges of $298 annually, while those at others paid $147.

The CFPB has been investigating overdraft fees, which are a major source of banks’ revenue. The agency has said its examination could result in new rules.

The Consumer Bankers Association, which represents large U.S. banks and regional banks, urged the CFPB against adopting any policy that it said could push consumers toward financial firms outside the banking industry which are less strictly regulated by the government and offer costlier alternatives.

“Consumers have the right to choose the products and features which best provide for their family’s daily financial needs,” Richard Hunt, the group’s president and CEO, said in a statement Tuesday. “Fortunately, the marketplace for checking accounts is extremely competitive and banks make every effort to educate their customers about the options available to them.”

Banks charge overdraft fees when customers try to spend more money than they have in an account.

Banks will allow the transaction and then charge the customer a penalty of as much as $35.

Consumer advocates say overdraft fees hurt the people who can least afford them because poorer customers are more likely to drain their checking accounts to close to zero.

“Consumers need to anticipate and avoid unnecessary fees on their checking accounts,” CFPB Director Richard Cordray said in a statement. “But we are concerned that some overdraft practices may increase consumer costs beyond reasonable expectations.”

In 2010, the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card or ATM transactions. Banks must obtain a customer’s consent, or “opt-in.” Without overdraft protection, a transaction is declined if the customer can’t cover it. The rule didn’t apply to checks, online bill payments or recurring debits, such as a monthly cable bill. It also didn’t limit how much banks can charge for the overdraft service.

Banks have responded by marketing overdraft protection aggressively.

Negative account balances can lead to involuntary closures of accounts, which can leave a black mark on a consumer’s record and make it hard to open a new account, the report noted. It found that involuntary closure rates at some banks were over 2.5 times higher for customers who had opted for debit and ATM overdraft coverage.

The overdraft fees are complicated, the report said, varying among banks with regard to the number of overdrafts that can be incurred in a single day, for example. The maximum amount that a bank is willing to advance to a customer as protection can vary widely based on many factors.

The order in which check, debit card and other transactions are posted to an account can affect the number of overdraft fees, and the report found widely varying posting practices among banks.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.