Overdraft Fees Rising

Overdraft fees for checking accounts have risen during the past two years, despite efforts by regulators to stop the aggressive practices by banks. The basic overdraft fee of $35 has not changed in the last two years, but banks have imposed other harsh penalties on consumers for minor lapses, according to recent reports by two non-profit groups.

The Pew Health Group, a research organization, called for the new Consumer Financial Protection Bureau (CFPB) to push banks to be more upfront about these bank fees. Another recent report by the Consumer Federal of America, an advocacy group, expressed similar concerns and urged consumers to inform the CFPB of high overdraft fees.

In 2009 the Federal Reserve required banks to tell customers about overdraft penalties, but the disclosure statements were often unclear and difficult for consumers to follow according to the two reports. In 2010 the Fed also prohibited banks from imposing overdraft charges unless a customer had signed up for the service. Anoter regulation imposed limits on the number of times customers can be charged overdraft fees.

The banks claim that the increases are due to federal legislation last year that reduced bank income from debit-card transactions. Also a 2010 survey showed that 77% of customers did not pay overdraft fees. That figure rose to 84% in 2011 according to the American Bankers Association. A majority of customers that did pay the fees say it was worth the protection they received for overdrawing their accounts. The American Bankers Association also notes that customers receive multiple notices about overdraft policies, including in their monthly statements.

Most banks offer two kinds of overdraft plans. While neither is required of customers, the reports say banks encourage customers to sign up. In an overdraft penalty plan, the bank pays the amount that was overdrawn by the customer in exchange for a fee. In an overdraft transfer plan, the customer can link to another account that will transfer the money, also for a fee.

Most banks also specify a minimum overdraft amount before they impose penalties. If overdraft amounts are not repaid within a certain time frame, banks can charge extended overdraft penalty fees. The Pew report said that there has been a 32% increase in this type of fee since 2010. The CFA alleges that bank overdraft loans are a form of payday lending where banks charge staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.

Overdrawn bank accounts that are unsecured may be discharged in a Chapter 7 banruptcy. If you are overwhelmed with debt you may want to consider filing bankruptcy. I can represent you in filing bankruptcy in Kansas or Missouri and I offer a free initial consultation to determine if bankruptcy is the best option for you. Please leave any questions or comments below.