Consumer Financial Protection Bureau looks at overdraft fees

WASHINGTON - Have you been hit by a costly overdraft fee? The government's new consumer watchdog is looking into the fees charged by banks, and proposing a change to your checking account statement.

Shoppers are eager to swipe sometimes without knowing how much is in their bank account. The penalty for an overdraft is up 17 percent in the last five years.

"I think it's outrageous. They are way too expensive," Bobbie Burgess said.

The fees average between $30 and $35 a transaction. Sometimes those fees are difficult to avoid because of bank procedures.

"They held the checks so they accumulated and that caused the overdraft," Burgess explained. "By the time they were done it was $150."

Starting in 2010, a new rule from the Federal Reserve barred banks from automatically enrolling consumers in overdraft programs for debit and ATM transactions. You had to opt in to the service. The rule does not apply to checks, online payments, or recurring debts.

With those new rules, some of the unscrupulous practices stopped, but the Consumer Financial Protection Bureau wants to make sure misleading marketing is not prevalent in the marketplace. The CFPB says the number of consumers who choose overdraft protection varies widely from bank to bank.

"The term protection is probably misinformation. It's not really protection. It's a fee," David Rothstein of Policy Matters Ohio said.

One suggestion is what's being called a penalty box . It would appear at the top of your checking account statement and tell you how much you paid in fees. It would be similar to the new warning boxes that appear on credit card statements.

"I think that will be a big help," Rothstein said.

Even those who've been helped by the new overdraft policies wonder if we really need more oversight.

"I'm leery of too much government control," Burgess said.

"Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it," CFPB Director Richard Cordray said in a statement. "We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

The CFPB inquiry will also look at the issue of reordering of transactions. That's when a bank doesn't process your debits in the order in which they were received. This practice has been the topic of class action lawsuits. Sometimes the debits are reordered so the largest amount is processed first and then the consumer is hit with more fees.

The inquiry will also look at missing or confusing information. The CFPB wants to make sure consumers understand how to avoid these fees. Also, the people who are impacted by these fees will be evaluated to see if they disproportionately effect low-income and young consumers.

The results could lead to new policies, education, new rules, legal action or guidance for banks.

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