This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Are Consumers Getting Ripped Off by Overdraft Fees?

NEW YORK ( -- The Consumer Financial Protection Bureau is investigating bank overdraft practices since consumers paid $32 billion in overdraft fees last year.

The CFPB study shows overdraft coverage varies significantly by financial institution and that consumers who sign up for overdraft coverage have higher costs and more involuntary account closures.

Overdraft and non-sufficient fund fees have become a huge source of industry revenues. According to the CFPB, these fees account for 61% of consumer checking account fee income.

"Consumers need to be able to anticipate and avoid unnecessary fees on their checking accounts. But we are concerned that overdraft programs at some banks may be increasing consumer costs," CFPB Director Richard Cordray said. "What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm."

A consumer can trigger an overdraft by spending or withdrawing more money from their checking accounts than is available. If the bank covers the payments with an advance, it charges a fixed overdraft fee for doing so. The institution can also choose to return the payment and charge a non-sufficient fund fee. Automated systems now make decisions for most banks.

Last year's $32 billion in overdraft fees was a $400 million jump from 2011 according to a recent study by Moebs Services. This 1.3% increase came almost entirely from a greater number of overdrafts rather than an increase in the price of the fee. Overdraft volume during the first quarter of last year actually fell to an 11-year low, but the number of overdraft transactions during the last nine months of the year rose 4.4%.

In July 2010, the Federal Reserve required banks to get permission from each checking account customer before the bank provided overdraft protection for ATM and debit card transactions. If consumers did not "opt in" for this coverage, debit card transactions made at store level or withdrawals from an ATM for an amount greater than the account's balance would be denied and no overdraft fee could be charged. The CFPB shows that in 2011, more than 40% of all new customers opted in for overdraft protection.

There are additional consequences for consumers who opt in, while heavy overdrafters who opted out reduced their fees by more than $450 in the second half of 2010. Consumers who opt in are more likely to end up with involuntary account closures -- the CFPB found that some banks had involuntary closure rates that were more than 2.5 times higher for accounts that had opted in to debit and ATM overdraft coverage.

The CFPB study also shows that it is difficult to compare overdraft costs by bank because the policies are complex and different. Banks post transactions in a different order, which can affect the number of transactions that trigger an overdraft fee. Overdraft coverage limits and fee structure also varies by institution. For example, some banks charge only overdraft fees for transactions that overdraw the account by more than $5, while other banks charge fees on every overdraft transaction regardless of the size.

Here are some additional findings from the CFPB:
  • The median per-item overdraft fee last year at the country's largest depository institutions was $34, and $30 at the smaller depository institutions.
  • Consumers who paid at least one overdraft or nonsufficient-funds fee paid $225 on average in annual fees in 2011 among banks in the CFPB report.
  • Average monthly consumer checking account payments per household grew 53% from 2000 to 2011.
Bill Hardekopf is chief executive of, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.19 0.00%
FB $118.06 0.00%
GOOG $695.70 0.00%
TSLA $222.56 0.00%
YHOO $36.00 0.00%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs