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TheStreet Open House

Bank Overdraft Fees Are Higher Than Overdrafts

NEW YORK (TheStreet) -- Uncle Sam, in the form of the Consumer Financial Protection Bureau, has taken a long look at bank overdraft fees and doesn't like what he sees.

Specifically, the CFPB has found that bank overdraft fees linked to debit cards "typically exceeded the amount of the overdraft itself."

Banks charge $34 on average for debit card overdraft fees, but the typical card amount that trip-wired the overdraft was $23, meanings banks get an extra $11 to settle the score with customers.

Read More: What You're Paying For Financial Fees -- and How To Avoid Them

"Adding insult to injury, consumers get hit even harder when banks reorder transactions to trip consumers into paying higher fees and charge additional fees each day an account is overdrawn," the CFPB says.

The agency is asking Congress and the White House for a stronger say on overdraft fees, including the ability to "ban or limit" excessive bank fees that they say plague customers.

More from the report:

  • Overdrafts are most of the vast amount of total checking account fees penalizing consumers. "For opted-in consumers, overdraft and NSF fees account for about 75% of their total checking account fees and average over $250 per year."
  • Most overdraft fees are paid by a small fraction of bank customers. The CFPB says 8% of customers incur nearly 75% of all overdraft fees.
  • Age matters with overdraft fees, as the 18-to-25 demographic triggers more than 10 overdrafts per year. Americans 62 and older represent just 2.8% of all overdraft fees.
  • Banking consumers are quick to make good on their overdrawn accounts, with more than 50% becoming positive within three days and 76% within one week.

The CFPB is talking up the issue in Washington, and that might not be good news for the banking industry, which earns $16.7 billion annually on these fees, according to ResponsibleLending.org.

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