A new report from the Consumer Financial Protection Bureau hones in on a single way in which customers are losing money to banks: overdraft fees.
The report states that over $11 billion was lost to overdraft fees just in the past year and offers four possible solutions to avoid paying overdraft fees.
Banks enact overdraft fees when a customer attempts to withdraw more money from their account than is actually available, and unfortunately, millions of Americans continue to unnecessarily pay these fees.
According to ThinkProgress, there have been government attempts to combat this: “When Congress passed the Dodd-Frank financial reform package in 2010, it included a requirement that banks get their customers’ permission to either authorize transactions that overdraw accounts or to simply decline them upfront.”
However, banks are often evasive in their terminology when customers are given overdraft options, which leads to confusion and more monetary gain for the banks.
According to the CFBP’s report, “52 percent of overdrafters don't recall opting into coverage [are] still charged” and “68 percent of overdrafters would prefer to be declined than pay $35 overdraft fee.” Banks usually offer “overdraft protection,” which means an automatic fee rather than being declined, but without explicit clarification, many customers assume they will not be paying fees in opting for overdraft protection.
According to the New York Times, banks are now also offering lines of credit to cover overdrafts, which “banks pitch as an alternative way to cover shortfalls in checking accounts but that can end up ensnaring customers” due to high interest rates and annual fees.
ThinkProgress further notes that, “Overdraft charges accounted for about two-thirds of all revenues from all fees on consumer deposits in 2015 and made up 8 percent of banks’ total income.”
This practice of manipulating customer confusion is just another way in which banks are taking advantage of Americans and garnering billions in the process. This is exactly why imposing tough regulations on Wall Street and the big banks is such a crucial issue—without regulations, reform is impossible, and everyday Americans are the ones who suffer.
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