Gaining From Overdraft Fees

Publication: The Philadelphia Inquirer

Author: Jeff Gelles


02/26/2012 - Where is the line separating fair business practices from those that mislead or confuse consumers? Does it matter that a questionable practice also has a deterrent effect - say, a fee imposed on customers whose mistakes generate extra expenses? Does it matter if that fee dwarfs the actual costs?

Those kinds of lines sometimes seem tough to draw. But they're at the heart of a long-running debate that the Consumer Financial Protection Bureau waded into last week. The thorny subject: bank overdraft fees.

On one side are U.S. banks that, according to Moebs Services, generated close to $30 billion last year from customers' overdrafts - both from mistakes and from some overdrafts that were, presumably, intentional.

On the other are consumers burned by the fees - especially young people and lower-income depositors - and organizations such as the Consumer Federation of America and the Pew Health Group that warn about the costs of a banking system increasingly reliant on "gotcha" charges.

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And consumer advocates complain that some banks use deceptive tactics to get consumers to opt in.

Or they just confuse them. Pew's Safe Checking Project has found that overdraft disclosures are typically buried in a pile of paperwork handed to new customers - paperwork averaging an astounding 111 pages at the nation's 10 largest banks, Pew found. And sure enough, Pew's focus groups have shown considerable confusion.

"We had one woman say, literally, 'I opted in so I could avoid the $35 fee,' " says Susan K. Weinstock, the project's director. If you just say no, the transaction will probably be declined, but the bank can't charge the fee.

There are better versions of overdraft protection such as linking a checking account to a line of credit, as well as other safeguards such as low-balance text alerts. Your bank should have offered them. If it didn't, that's the kind of input the CFPB needs.

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Read the full column, Gaining From Overdraft Fees, on the Philadelphia Inquirer's Web site.

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