The Consumer Financial Protection Bureau, created by Congress last year as part of financial reform, has broad authority to ban unfair or abusive practices in financial products and services. Protecting checking account holders from unreasonable fees and other costly traps should be one of the agency’s first priorities when it opens for business in July.
At a minimum, it should apply the same sensible protections won by long-abused credit card users in the Credit Card Act of 2009.
A new report by the Pew Charitable Trust’s Safe Checking in the Electronic Age Project analyzed the policies of the nation’s 10 largest banks. It shows why checking account holders — in other words most adult Americans — are in desperate need of better protections.
Required disclosure documents run an average of 111 pages and often hide penalty and fee information in several places so that customers cannot easily find it. Checking overdraft fees are not “reasonable and proportional,” as late fees must now be for credit cards. According to the study, the average overdraft charge of $35 on an average overdraft of $36 amounts to an annualized interest rate of more than 5,000 percent. The banks deserve to make money on these transactions. But certainly not that much.
Most of the banks studied reserve the right to reorder transactions in ways that maximize overdraft fees. They can post withdrawals before deposits. They can also clear checks out of the order in which they are presented — processing the largest item first — so that the account is emptied quickly and they can levy multiple overdraft charges.
The study estimates that the banking industry will reap $38 billion in overdraft fees this year — a record high — much of that because of tricky disclosure, processing and fee schemes. That is outrageous.
Source: New York Times