Overdue Overdraft Overhaul

If bankers are as smart as they are well paid, why don’t their overdraft fees work? Why don’t the fees discourage overdrafts? Why did these fees swell 17% in the last six years? Some observers figure consumers pay $30 billion in these fees. Could it be (cynicism alert!) that banks view these “penalties” as a lucrative source of revenue? Consider that the entire banking industry earned $119 billion in 2011 from all sources, sharpening the importance of overdraft fees.

Whether overdrafts derive from bad money management by customers, or calculated targeting by an industry with proven skills in this area, the new Consumer Financial Protection Bureau (CFPB) aims to shed light. “Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” explains CFPB Director Richard Cordray. “We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”

In a conversation with Public Citizen February 28, CFPB official Corey Stone outlined the study he’ll help conduct. The assistant director explained that the agency will dive deeply into statistics to clarify a number of problems currently understood only by sampling or localized analysis.

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