Debit card overdraft fees hit 36 million users, trigger growing call for reform

Charlene Crowell | 8/8/2013, 6 a.m.

Recent related findings by the Consumer Financial Protection Bureau (CFPB) show that the Fed’s opt-in rule has not eliminated the substantial harm inflicted by overdraft fees triggered by debit cards. CFPB determined that involuntary account closures were more than twice as likely for customers that opted in to overdraft than those who did not.

“Banks and credit unions have long defended overdraft fees by saying they protect customers from bounced checks, which typically trigger insufficient funds (NSF) fees and potentially merchant fees,” states the CRL report. “But the same justification could not be made for debit card purchases, since there is no NSF or merchant fees charge for debit card transactions that are declined at checkout when the customer’s account is short.”

CRL offers a set of policy remedies to halt overdraft’s harmful features. Highlights include banning overdraft fees on debit cards, ATM transactions and on pre-paid cards. CRL also advocates banning banks from manipulating the order of consumers’ checking transactions to increase fees. 

“Without substantive reform of the product, the fees overdrafts generate provide financial institutions too powerful an incentive to ensure that customers continue to incur overdraft fees — an incentive that will continue to outweigh even the best disclosures,” concluded CRL.

Charlene Crowell is a communications manager with the Center for Responsible Lending.