A new report conducted by the Consumer Financial Protection Bureau (CFPB) has found that overdraft fees are still a large source of revenue for banks in the US.
The Federal Reserve passed a regulation in 2010, allowing customers to opt in to overdraft programmes instead of having their bank automatically enrol them.
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The CFPB found, largely based on data collected from a small number of large banks that overdraft fees make up 27.5% of community banks’ net income after taxes.
Banks reportedly spend 14.4% of the fees they collect when a customer overdraws their account but doesn’t have the money to pay off the amount owed at a later date.
The study also found that in 2011, more than one in four customers overdrew their accounts, with 8% overdrawing at least ten times a year.
84% of all overdraft fees are made up by frequent overdrafters, who are more likely to have their accounts eventually closed due to lack of money.
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By GlobalDataCustomers are still signing up to overdraft programmes with just over 16% opting in at the end of 2011, and 22% opening new accounts.
One particular practice the CFPB focused on was how banks process customers’ checks and debit purchases.
Several ways in which banks order transactions were found; some are deducted chronologically, whereas others are reordered with the largest payment being processed first, consequently resulting in the customer having to pay more fees on smaller transactions.
Richard Cordray, director of CFPB, said: "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."
"What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm," he concluded.
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