Bank overdraft fees lift profits
By KATHY CHU
USA Today
Overdraft fees are boosting banks' profits at the expense of consumers, especially young and low-income people, finds a new Federal Deposit Insurance Corp. study.
The 18-month survey found that most banks automatically enroll consumers in overdraft programs — some don't allow them to opt out — and then cover overdrawn transactions for a per-item fee of up to $38.
The survey excludes many of the largest banks in the nation, because it covers only FDIC-supervised banks. Still, it's the largest study of overdraft programs by a bank regulator and helps "fill an important universe of information that has not been available to policymakers," says Andrew Gray, agency spokesman.
In recent years, consumer groups have received an increasing amount of complaints about overdraft fees. The Federal Reserve has proposed a rule, which it expects to finalize by year's end, that requires banks to give customers the ability to "opt out" of overdraft programs.
But advocates say the rule doesn't go far enough because banks don't have to obtain explicit permission from customers to pay their checks and debit card transactions. A bill by Rep. Carolyn Maloney, D-N.Y., would require banks to sign up consumers for this service.
The FDIC's survey found:
"Banks are generating the bulk of their fees off the most vulnerable account holders," says Leslie Parrish of the Center for Responsible Lending.
Nessa Feddis, senior counsel at the American Bankers Association, says that overdraft fees are avoidable. The FDIC's survey — which showed that only a quarter of consumers pay overdraft fees — confirms ABA's findings, notes Feddis.
