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Consumer Protections for Overdraft are Still Not Resolved

Adam Rust's picture

Posted July 15, 2014

The Pew Research Center’s June 12th, 2014 report Overdrawn: Consumer Experience with Overdraft found that 80 percent of consumers who had overdraft felt that the government should provide better regulations and oversight on the process

and fees.

Given that millions of consumers overdraft each year, one could conclude that overdraft is a populist issue for reform. 

To back that up, Pew has delivered two petitions to the Consumer Financial Protection Bureau - each with 25,000 signatures asking for the agency to prioritize reform of overdraft.

The 35-dollar cup of coffee became a popular catch phrase for overdraft protections that took advantage of consumers. The last time overdraft caught on fire, Congress took up the issue and put pressure on the Federal Reserve to issue new guidance.  As a result, the Federal Reserve required an opt-in provision for ATM and debit card transactions.

For a while this took the attention off overdraft, as the problem had been “addressed.”

But not resolved

Pew found that more than fifty percent of those who had overdraft did not remember opting in or agreeing to overdraft protection.  Sixty percent who over-drafted would prefer to be declined on debit card transactions, rather than pay the 35 dollar fee.

Many banks still rank the order of check clearing according from high to low which artificially creates more fees.  Overdraft fees generated $32 billion for banks in 2012. 

Regulators and bankers should note that the issue of overdraft is not resolved for consumers.