CFPB Working for You: New Report Shows How Overdraft Fees are like a 17000% APR Loan


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Thursday, August 14th, 2014

Consumers have made it clear: they’re fed up with overdraft fees. Unreasonable and high overdraft fees can be disastrous for consumers like James of Aliquippa, PA, who wrote to us:

“[M]y bank has charged me in overdraft fees roughly $5,122.00 over the last 24 months . . .These are strictly overdraft fees charged by the bank per item and/or ATM purchase. Many were a result of small trivial $1.00 to 5.00 convenience store purchases that were processed under PNC bank policy debiting highest to lowest in clearing transactions . . . I can tell you [that] this has cost me . . . a job . . . foreclosure to [my] home, [and] the security of [my] marriage and family. . .”

Since August 2010, banks must obtain consumers’ permission before signing them up for “overdraft protection” programs for ATM and debit transactions. Customers who decide against  “opting-in” to overdraft protection will have these types of charges declined if there isn’t enough in the account to pay them.

Consumers who opt into overdraft programs can end up paying a $34 fee for accidentally overdrafting. And some banks still reorder charges so that they can collect more overdraft fees. For example, if you make four transactions in one day and overdraft only on the last one, your bank may change the order of processing your purchases so that you overdraft four transactions.

Now a new report from the Consumer Financial Protection Bureau (CFPB) puts it in stark terms: overdraft fees are comparable to a loan with a 17000% APR! That’s because a consumer can be charged a median $34 overdraft fee for a typical debit card purchase of $24 or less, which is usually paid back within three days. Consumers with overdraft protection spend an average of about $250 each year in overdraft and non-sufficient funds (NSF) fees. Bottom line: don’t opt-in to overdraft protection, and if you have it, tell your bank that you want to drop it.

We commend the CFPB for highlighting how unfair overdraft fees can be for consumers. We’re urging the CFPB to take the next step and write strong rules that give consumers like James real protection from excessive overdraft fees.

The CFPB has been working hard to defend consumers for the past four years. Recently, the CFPB has also released a new tool to help social workers and others provide financial guidance to their clients and an update on their efforts to obtain the secret agreements that some colleges make with banks offering campus financial products. Please click here to learn more about the latest from the CFPB.

But the big banks are doing their best to stop the CFPB. They’ve introduced a number of bills in Congress that would make it difficult for the CFPB to do their work. Take a look at our fact sheet to learn more about these bills, then ask your representatives in Congress to vote against them!

If you’ve been helped by the CFPB, please let us know – take a moment to share your story!

One response to “CFPB Working for You: New Report Shows How Overdraft Fees are like a 17000% APR Loan”

  1. […] in 2016, the top 10 biggest banks made $7.5 billion. These fees are costly for consumers. The Consumer Financial Protection Bureau (CFPB) has compared overdraft to a short-term loan with a 17,000% […]

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