The Law Q&A | Banks, overdraft fees facing additional scrutiny - Champaign/Urbana News-Gazette
Are there any regulations on fees that banks can charge on an overdraft account? Can they charge anything they want?
Not much, and yes, pretty much.
When you’ve run your checking account into the red, even if by mistake, the fees can be hefty. Indeed, it is reported that banks generate nearly $15.5 billion a year in overdraft fees, which make up two thirds of all fee revenue by banks in the U.S.
While there is no particular limit on the amount of fees charged, or when they can be incurred, the Federal Consumer Financial Protection Bureau (CFPB) has found that unless the customer has agreed to the terms of overdraft fees before the fees are charged, such charges violate numerous federal consumer protection laws.
Banks are required to have the customer consent to all the terms of the account usage. Typically, a bank will have the customer sign a deposit or account agreement when opening a new account or using a new service. Those agreements are supposed to set forth when and how overdraft fees will be charged.
Beyond that, there is little regulation on the amounts or how charged. Banks can even charge you more than one overdraft fee in a single day.
Indeed, banks might not charge you in the order the overdrafts occur, but on amount. This is true not just on withdrawals, but on deposits.
A check deposited that you’re counting on gets bollixed if the bank credits a smaller one first, thereby triggering an overdraft.
Different banks may limit themselves in your account agreement as to how many a day they charge. Bank of America is four, for example. Chase three, and with a total cap amount.
You can buy overdraft coverage services from the bank. For example, you may pay an agreed fee on overdrafts, but the bank allows your transactions to go through. If you have multiple accounts, the bank may as part of its coverage agreement automatically shift funds from one to another to cover or minimize the overdraft. But then, there is typically a charge for each such event.
Or there’s overdraft assurance that you might buy where a monthly fee is charged for a line of credit to cover your overdrafts — in effect the bank is loaning you money for your overdraft so as to not declare it an overdraft.
The bottom line is that you are either paying a penalty to the bank for an overdraft, or you are paying an agreed purchase price for some type of service the bank gives to cover the overdraft.
Hence the $15 billion-a-year revenue.
Chase just announced a lowering of its overdraft charges. Was it because its board of directors, like Scrooge, had an epiphany for humanity after being visited by three Christmas ghosts? Or perhaps it was the spirit of CFPB, which has been making noises of calling for more strict regulation on the overdraft fee practices of the banking industry.
Was Chase, then, trying to signal it will be kinder and gentler with consumers so as to fend off being regulated?
After all, as Marley’s ghost lamented, mankind should be its business.
God bless us, every bank stockholder.
source: https://www.news-gazette.com/opinion/columns/the-law-q-a-banks-overdraft-fees-facing-additional-scrutiny/article_570416c5-9c33-5b6d-a842-fd3e380ed1e0.html
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