Banks Still Screwing Customers By Piling On Overdraft Fees
A Citizens Bank customer who overdraws his or her account by $10 incurs an initial penalty fee of $25. If that overdraft and fee go unpaid for at least six days, the company charges an additional $35. If it's not repaid for at least 10 days, the customer can rack up $109 in penalties on that single overdraft.
Banks describe such programs as "courtesy protection." I describe it as usury. In September, a slew of financial companies changed their overdraft practices to stem public furor over these punitively high fees and, more specifically, in hopes of weakening support for proposed legislation capping such charges. The Federal Reserve in November also passed rules requiring bank customers to "opt in" to overdraft protection programs.
On the whole, that's good. But it doesn't resolve the fundamental problem with overdraft fees: They remain outrageously high, and banks aren't restricted in how many times customers may be charged. In the U.S., 60 percent of the largest banks charge additional fees when an overdraft and the resulting fee aren't repaid within a few days, according to the Consumer Federation of America. Writes the group:
Overdraft fees bear no relationship to the amount of credit extended when banks cover overdrafts. According to the FDIC, the typical debit card overdraft is $20, far less than the typical $35 fee big banks charge per overdraft. There are currently no limits on the dollar amount that banks may charge when customers are permitted to overdraw an account.For that, frighteningly enough, we have to rely on Congress. Two proposed bills -- the FAIR Coverage Act and the Overdraft Protection Act of 2009 -- would do much to curb overdraft fees. Banks could charge only one overdraft fee per month, or six annually, and fees would be more proportional to the costs.
Yet passage of the legislation remains very much in doubt. Many elements of financial reform are in flux, particularly in the Senate where outgoing Connecticut Democrat Chris Dodd is getting wobbly-kneed in the face of strong industry lobbying.
That's especially troubling given that the proposed Consumer Financial Protection Agency appears stillborn. If the CFPA is, as I expect, entombed within one of the existing banking regulation agencies (or scrapped altogether), new laws limiting overdraft fees become that much more important.