CFPB: Consumers Surprised by Overdraft Fees
CFPB disputes claims that consumers are aware of the fees
Most consumers who were hit by overdraft fees during the past year said they were surprised by the charges, the Consumer Financial Protection Bureau said Tuesday, in a study that appears to contradict a key argument made by financial services trade groups.
Using data from the agency’s Making Ends Meet survey, the CFPB said that only 22% of the people assessed overdraft fees had expected the fees. In fact, the agency said, 62% of those assessed fees had other sources of credit that could have been used to avoid the overdraft.
In households charged more than ten fees in the past year, 51% still had credit available on a credit card. “Our research finds that American families are paying fees they do not expect, even when they have access to cheaper forms of credit,” CFPB Director Rohit Chopra said, in releasing the report.
Overdraft fees have been a huge source of contention between the CFPB and the financial services industry. The Biden Administration has lumped many financial charges, including overdraft fees, into the category of “junk fees” it wants to eliminate. The CFPB is expected to issue a proposed rule governing the fees.
In recent years, many banks have eliminated overdraft fees. Credit union trade groups have said that members opt into overdraft programs when they open an account and often use the programs to make purchases even though they know they are going to be charged a fee.
The CFPB acknowledged that some consumers use overdrafts in that manner. “Some consumers appear to use overdrafts often and intentionally as a source of credit, even with their high cost,” the CFPB said.
The agency added, however, that overdrafts are exempt from the Truth in Lending Act, which is designed to promote the use of informed credit and to make it easier for consumers to compare the costs of credit.
The CFPB also reported that:
Households incurring overdraft and non-sufficient fund fees are more likely to struggle to meet their financial obligations; 81% reported having trouble paying a bill during the past year, compared with 25% for households that were not charged a fee.
Low-income households are the hardest hit by overdraft and NSF fees. Just over 10% of households with incomes of more than $175,000 were charged an overdraft or NSF fee in the previous year, while 34% of those making less than $65,000 were hit with those fees.