Watchdog Launches Inquiry Into Bank Overdraft Fees - MarketWatch
The nation’s consumer watchdog bureau on Wednesday launched an inquiry into fees charged by banks when consumers overdraw their accounts, a multi-billion-dollar business for financial institutions.
“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” said Richard Cordray, director of the newly formed Consumer Financial Protection Bureau.
Moebs $ervices, an economic research firm, estimated in September 2010 that banks and credit unions would earn $38 billion in overdraft fee revenue in 2011.
Sales of existing homes rose 4.3% in January and inventories fell to nearly seven-year lows, as lower prices, unusually warm weather and an improving economy all lift demand.
Banks typically provide overdraft “protection” when consumers overdraw their accounts, covering the transaction and charging fees as large as $35 for each overdraft.
However, a large percentage of bank profits from overdrafts come not from individuals who make a mistake but from low-income consumers who overdraw their accounts on purpose, as a type of short-term loan because they can’t cover their basic living expenses.
The CFPB pointed to a 2008 Federal Deposit Insurance Corp. study that found that 46% of young-adult account holders incurred overdraft fees.
Consumers who overdrew 20 or more times per year paid an average of $1,610 in overdraft fees annually, according to the study.