Consumers are ticked off at banks, and you can hardly blame them. After all, taxpayers poured hundreds of billions of dollars into bank bailouts, only to go home to overdraft charges in their bank account.
But that animosity is growing worse, as a new poll indicates. And Congress — that bastion of gridlock these days — may be the only way back to sanity for enraged bank customers.
Consumer anger is most definitely the theme behind a nationwide February poll from the Consumer Federation of America. In it, survey respondents make no bones about it — they want Congress to set limits and add disclosures on bank overdraft fees.
The CFA poll points out that the Federal Reserve is enacting some new rules and regulations that help consumers. For example, a key regulation would force banks to let customers know they’re enrolled in one of those debit card overdraft programs that allow purchases to go through even though there’s not enough money in the consumer’s account to cover the transaction.
But bank consumers say that’s just not enough. According to the CFA study, consumers paid more than $23.7 billion in overdraft fees in 2008 — that’s up 35% from 2006. Additionally, 50 million Americans have exceeded their bank balance at least once during a 12-month period from 2007-2008, with 27 million Americans forking over fees on five or more bank overdrafts annually.
The CFA says that bank overdraft fees vary widely — from $19 per overdraft at U.S. Bank (Stock Quote: USB) to $39 for an overdraft at Citizens Bank (Stock Quote: RBS). The average overdraft fee at big banks is $35, the CFA adds.
Rebecca Born, policy counsel for the Center of Responsible Lending, which participated in the study, says “The Federal Reserve’s recent rules address only consumer consent on certain types of overdrafts — they do nothing to get at the substantive problems with today’s overdraft product, particularly the cost and frequency of these fees. Initial consent is only a baseline protection.”
One practice that particularly irks bank customers is “sequential” bank account withdrawals. As the CFA puts it, that’s when banks manipulate the order in which withdrawals are posted in order to trigger more overdraft fees. In an overview of the poll on its Web site, the CFA says “Large institutions usually clear the largest transaction first, causing more transactions to overdraw the account. This practice generates more in overdraft revenues because the institution can charge an overdraft fee for each transaction once the account is below zero.”
Is Congress lending an ear to bank consumer frustrations over bank overdraft fees? To a point, yes. There are several bills rolling through Congress that would help protect Americans from overly zealous bank fee programs. A bill co-sponsored by Sen. Chris Dodd and Rep. Carolyn Maloney would limit overdraft fees to one per month or six per year. Any overdrafts that would exceed those levels could result in more bank overdraft fees, but on a much lower scale. The bill would also stop the “sequential” withdrawal manipulation by banks and calls for a “real time” warning from banks before an overdraft fee is deducted from a consumer’s bank account.
The CFA estimates that, with Congressional limits in place, bank consumers would save $24 billion annually. Of course, banks have well-paid lobbyists that will try to kill — or least water down — the bill before it can become law.
There’s no telling what will happen in Washington. But on Main Street, the message is clear.
When it comes to bank overdraft fees, consumers are madder than Hell and they’re not going to take it anymore.
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