Surging Overdraft Fees Hurting Americans, Advocacy Group Says

Surging Overdraft Fees Hurting Americans, Advocacy Group Says


The Center for Responsible Lending (CRL), a nonprofit, nonpartisan research and policy organization, says that bank overdraft fees have surged by 35% over the past two years, costing Americans nearly $24 billion in 2008 alone. As many as 51 million Americans are affected annually at an average cost of $34 per overdraft.

Protecting Family Wealth

money trapThe Durham, NC organization whose mission is defined as, “protecting homeownership and family wealth by working to eliminate abusive financial practices,” says that overdraft fees are adversely affecting families who are already financially pressed due to the most recent recession and its aftermath.

“Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables,” said CRL senior researcher Leslie Parrish. “These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy.”

Small Debit Transactions

According to the CRL, small debit transactions are the usual trigger which bring about overdraft charges. Most of these could be avoided if these transactions were denied in the first place, instead of approved and resulting in overdraft charges.

A handful of banks have attempted to amend their overdraft policies, but the CRL contends that they aren’t going far enough and have asked policymakers to do the following:

  • Require that institutions deny debit card purchases and ATM withdrawals, without charge, if the funds aren’t there.  As a limited exception, an overdraft fee could be charged if the lender gives the customer a real-time warning and chance to decline.
  • Require that overdraft fees bear some relationship to a lender’s cost of covering a shortfall.
  • Limit the number of fees that can be charged to a customer during a year before the institution must enroll the customer in a reasonably priced overdraft product, such as a line of credit, if it wants to keep charging for overdrafts.
  • Consolidate and streamline existing federal consumer protection authority by housing it in one organization: the proposed Consumer Financial Protection Agency, which would focus solely on what’s in the best interest of consumers.

As mentioned, most banks allow customers to enroll for overdraft protection which greatly reduces the fees for overdrafts. Funds are typically withdrawn from a related credit card or savings account, but those costs are much lower than an overdrawn checking account and the resultant fees.

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Categories: Consumer Tips, Money News

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".