After years of consumers paying steep fees for overdraft protection that, in some cases, they didn't even ask for, the government stepped in three years ago. Now, banks must get consumers OK — or opt-in — before covering ATM and debit card transactions when the customer’s balance is too low.
The Consumer Financial Protection Bureau issued a report today on how things are working out.
The agency found that the percentage of new customers opting in for overdraft protection differed substantially among banks. At some institutions, more than 40 percent of them signed up for overdraft protection, while others saw fewer than 10 percent enrolling.
Those who opt in pay higher fees. The CFPB looked at people who frequently overdraw their accounts but who didn’t opt-in overdraft protection. The agency said these consumers ended up saving on average more than $450 over a six-month period in 2010. (That’s $900 a year and a sizable savings that surely would be enough to cover many transactions.)
Overall, the agency said, consumers who did overdraft their accounts in the course of a year paid an average of $225 in fees.
The agency found that fee structures varied widely among institutions and are often so complicated that it’s difficult for consumers to figure out how to avoid overdraft fees. Some lenders, for instance, won’t charge a fee if the amount overdrawn is under $5; others slap a fee on no matter how big the shortfall.
Also, the CFPB found, some banks will post checks or debit transactions from large to small, meaning that the account is depleted faster so more overdraft fees are triggered.
CFPB's director, Richard Cordray, said in a statement that the agency isn't saying banks or credit unions shouldn't offer this service. And he notes "progress" has been made to protect consumers.
So I'll say it. It’s really hard to make a case for overdraft protection. Banks have said that it prevents customers from being embarrassed by having their transactions denied. But a savings of $900 a year if you frequently are overdrawn or $225 if you’re just average is worth a few seconds of discomfort.