Pew Study: More Than Half Hit With Overdraft Fees Did Not Know They Opted In
Washington DC- Today, U.S. Senator Bob Casey (D-PA) called on the Consumer Financial Protection Bureau (CFPB) to close a loophole that has left consumers vulnerable to overdraft fees.
Two years ago the Federal Reserve required banks to get customers’ permission before enrolling them in overdraft protection, but a new study by Pew has shown that banks are finding a way around the rule. Pew’s study found that banks are using confusing language to fool consumers into signing up for overdraft protection, and that half of all those hit with the fee are unaware they were signed up for overdraft protection.
In his letter to Richard Cordray, Director of the CFPB, Casey called for a simple, standard notification that all banks would use so consumers could understand what they’re signing up for.
“Consumers shouldn’t be tricked into signing up for a service they don’t want or feel they need,” Casey said. “The CFPB should come up with one, commonsense phrase that consumers can recognize so they don’t end up paying outrageous fees.”
Overdraft fees, which the economic-research firm Moebs Services says generated close to $30 billion last year, are charged to consumers when they over-draw from their bank account. Two years ago, the Federal Reserve issued consumer protections which require banks to get a customer’s permission before enrolling them in overdraft protection, but now banks are using confusing language to enroll consumers into the program unbeknownst to them.
In his letter, Casey wrote, “I urge the Consumer Financial Protection Bureau to examine these practices and establish a simple, standard notification standard to inform consumers of the overdraft coverage provided with their accounts.”
The full text of Casey’s letter to Director Cordray can be seen below:
May 16, 2012
The Honorable Richard Cordray
Consumer Financial Protection Bureau
Dear Mr. Cordray:
I am writing in regards to a recent study by the Pew Charitable Trusts concerning overdraft practices for debit card purchases and ATM withdrawals. Despite Federal Reserve’s efforts to reform these practices, it appears that many consumers are still being directed unknowingly into overdraft programs that carry high fees.
The Federal Reserve issued a rule in May 2010, requiring banks to have their customers “opt-in” if they charge a penalty for overdraft protection. These penalties can be significant; in Pennsylvania the median penalty fee is $35 per overdraft.
According to the study by the Pew Charitable Trusts, the majority of those who overdrafted were not aware that they had opted into the coverage. The study also found that this protection is often unwanted; 75 percent of survey respondents indicated that they would prefer that a debit or ATM transaction be declined rather incurring an overdraft fee. Further, their research indicates that consumers are often confused by the terms and conditions banks use to describe their overdraft coverage. Different banks use different terms for their overdraft options the result of which is customers unwittingly signing up for overdraft protection that may involve a large fee.
While the overdraft protection plans offered by banks can serve as a valuable service, it is important that customers have a clear understanding of the plans they are signing up for. I urge the Consumer Financial Protection Bureau to examine these practices and establish a simple, standard notification standard to inform consumers of the overdraft coverage provided with their accounts.
Thank you for your consideration of my views.
Robert P. Casey, Jr.
United States Senator