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About The skanner. (Portland, Or.) 1975-2014 | View Entire Issue (Oct. 15, 2014)
Financial News Using Your Debit Card? Watch Out for Penalties New report says consumers using debit cards paid $1.75 for every $1 overdrawn C onsumers who maintain low and no cushions in their checking accounts may have thought that the over- draft “banking service” was a big help against bouncing checks. But as the use of debit cards have replaced most cash purchases, this “service” has become a drain of available cash for consumers and a major source of revenue for banks. A new research report by the Consumer Financial Protection Bureau found that the majority of debit card overdraft fees are incurred on transactions of $24 or less. Further, as the majority of overdrafts are repaid within three days when the bank repays itself from the consumer’s next deposit, the median overdraft fee of $34 carries the equivalent of 17,000 percent annual percentage rate (APR). Earlier research by the Center for Responsible Lending (CRL) similarly found that consumers using debit cards paid $1.75 for every $1 overdrawn. “With the advent of debit cards, consumers started using them rather than cash for more and more small or impulse purchases. And, as banks and credit unions covered more and more of the transactions, they have assessed higher fees for doing so,” said R ESPONSIBLE L ENDING Charlene Crowell CFPB Director Richard Cordray. “Today, more than half of con- sumer checking account income is from overdraft fees.” An overdraft occurs when a con- sumer does not have enough money in his or her checking account to cover a transaction, but the bank or credit union pays the CFPB’s new study both rein- forces and heightens ongoing concerns that overdraft fees on debit card transactions in particu- lar are harmful to consumers. CFPB also found that a 2010 rule from the Federal Reserve did not solve the overdraft problem. That rule required financial institutions to get consumers’ opt-in to over- draft fees on debit cards; but it failed to address how large and frequent these fees can be. Addi- tionally, many banks used heavy-handed and deceptive mar- keting tactics to lure consumers to ‘opt-in.’ CFPB found that consumers subjected to overdraft fees on Because of ‘banking service’ agreements, many consumers are unaware of the deficiency in their funds or how often these fees were charged until after the fact transaction anyway in exchange for a fee. Consumers can be charged overdraft fees on checks, debit cards, ATM transactions, automatic bill payments or direct debits from lenders or other billers. debit cards, pay an average of nearly $260 per year in overdraft and nonsufficient funds (NSF) fees. Nearly one of five consumers overdrew their checking accounts more than 10 times a year. Every dollar charged for over- draft translates into fewer avail- able dollars once a deposit is made into the account. Even worse, many consumers are unaware of the deficiency in their funds or how often these fees were charged until after the fact. As a result, many consumers can be blind- sided by a barrage of fees resulting in a devastating financial impact. The hardest-hit of consumers in these scenarios are those with low- to moderate-income. Some banks – such as Citibank, Bank of America, HBSC and a significant number of community banks – have chosen not to charge overdraft fees on debit card pur- chases at all. Even so, most banks continue to use overdraft fees as a lucrative revenue stream. In recent years, civil rights lead- ers have spoken loudly and clearly against overdraft practices, noting that harmful overdraft increases the ranks of the unbanked. Two major banks, JP Morgan Chase and Wells Fargo were directly asked to end charging overdraft fees on debit card transactions. October 15, 2014 The Portland and Seattle Skanner Page 7
