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Bryan Yurcan
Bryan Yurcan
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Cordray: Overdraft Fees Similar to Payday Loans

The head of the Consumer Financial Protection Bureau said the agency will scrutinize the practice.

By now, the industry is buzzing about the news that the Consumer Financial Protection Bureau will be examining bank overdraft fees in the coming year. The purpose, according to the CFPB, is to collect information to determine if banks are making it clear to their customers how the fees work, and if banks are purposefully manipulating the system to increase the frequency with which consumers are hit with overdraft fees.

As part of the inquiry, the CFPB is seeking public input on a prototype "penalty fee box" -- a disclosure on a consumer's checking account statement that would highlight the amount overdrawn and total overdraft fees charged.

Yesterday, I attended a brief roundtable event featuring representatives from the CFPB, consumer groups and banks. During the event, CFPB Director Richard Cordray explained that the agency is conducting this inquiry into bank overdraft fees because "overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it."

Cordray said lack of education is often the reason for customers accruing overdraft fees.

"Due to the fast-paced nature of the economy, consumers can incur multiple overdrafts in one day and not be aware of it," he said, adding that low income and young consumers bear the brunt of the overdraft fees levied. He added that many banks' overdraft rules are "masked by the fine print of checking account agreements."

According to the CFPB, the average overdraft fee ranged from $30-$35 in 2011 and has increased by 17 percent over the past five years. A study by the Federal Deposit Insurance Corporation published in 2008 found that consumers who overdrew 20 or more times per year paid an average of $1,610 in overdraft fees annually.

"There are similarities between overdrafts and payday loans," added Cordray. "Both serve consumers who are strapped for cash and who feel they need short-term help."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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User Rank: Apprentice
2/23/2012 | 7:07:58 PM
re: Cordray: Overdraft Fees Similar to Payday Loans
I believe current laws already limit OD fees to 5 or less per day.-á This makes the CFPB/Cordray look like idiots.-á And OD fees are NOT the same as payday loans.-á OD fees are the result of an account holders carelessness and irresponsibility.-á Where is the consumer responsibility in all this brewhaha??-á Why isn't someone investigating why consumers overdraw their acounts and then want someone to bail them out of their stupidity?-á
Maybe the ultimate answer is to go completely electronic.-á Send everything (checks, too) as electronic, immediate-impact transactions.-á If a consumer does not have the money in their account, the-átransaction is canceled immediately.-á No sale but no OD fees applied - end of issue.
User Rank: Apprentice
2/23/2012 | 6:01:54 PM
re: Cordray: Overdraft Fees Similar to Payday Loans
Pointless Government Exercise -- just like the entire agency.-á Why is it that these politcally grandstanding congressmen and agency heads never stop and think about the nature of this fee?-á It is a totally voluntary fee.-á If the consumer doesn't want to pay this fee, don't write a check when you don't have the money in your account to cover it.-á It is that simple, but according to these government officials, the banks are just supposed to allow these people to write themselves what amounts to-áinterest free loans any time they are running a little short.-á

What a deal.-á As long as I have a checking account, I will never have to finance anything again.-á The people in Washington need to get over this-ástroking people for votes at the expense of the banks, and make people take responsibility-áfor their own actions.-á -á
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