Banks as Payday Lenders: Overdraft Fees in Overdrive - Products News


ADVERTISING DISCLOSURE: is an independent, advertising-supported web site. receives compensation from most credit card issuers whose offers appear on our site. Compensation from our advertising partners impacts how and where their products appear on our site, including, for example, the order in which they may appear within review lists. has not reviewed all available credit card offers in the marketplace.

Credit Card Applications » News » Products » Banks as Payday Lenders: Overdraft Fees in Overdrive

Banks as Payday Lenders: Overdraft Fees in Overdrive

Banks as Payday Lenders: Overdraft Fees in Overdrive
Tags: , , , ...
The content is accurate at the time of publication and is subject to change.

Two nonprofit groups came out with new report this week that sound the alarm about overdraft fees by banks, saying that government regulations are not working to keep fees in check and accusing banks of “payday lending.”

The Pew Health Group – a nonprofit research group – and the Consumer Federation of America (CFA), a consumer advocacy group, both say that it is high time the Consumer Financial Protection Bureau (CFPB) stepped in again to lay down the law.

Been There, Done That

Back in February, overdraft fees were the subject of an inquiry by the CFPB, who said that “Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it.” Richard Cordray, the director of the CFPB , said the organization would investigate why, for example, a 2008 study by the Federal Deposit Insurance Corp (FDIC) found that 84 percent of all overdraft charges occurred within only 9 percent of checking accounts, suggesting that low-income customers were being unfairly targeted.

In spite of that inquiry, both the Pew and the CFA reports found that the frequency of overdraft fee charges has gone up over the past two years, and that further, the disclosure statements regarding the fees are unclear and difficult to understand.

Banks or Payday Lenders?

The fees themselves haven`t gone up, holding steady at $35, but banks also charge penalty fees if the overdraft isn`t paid off in time, and the Pew report says that there has been a 32 percent increase in those penalty fees since 2010. Jean Ann Fox, the director of financial services for the CFA, says in a statement that “Bank overdraft loans are a form of payday lending. Banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.”

Who Pays the Price?

Not everyone signs up for overdraft protection, which is basically a service wherein the bank will cover the funds if customers accidentally overdraw their accounts. Instead of returning the check, incurring bounced check fees on both sides, they process the overdraft and charge the customer a fee. One of the regulations put in place in 2010 prohibited banks from charging overdraft fees unless customers specifically signed up for the program.

Some consumer groups claim that banks pressure customers to sign up for these programs, but a survey by the American Bankers Association says that in fact, not too many customers participate in the program. They say that only 23 percent of customers paid overdraft fees in 2010, and in 2011 only 16 percent paid them. Nessa Feddis, vice president of the association, said that a majority of customers said that they felt the fees were worth the protection they got from bouncing checks. Commentary

On the subject of overdraft fees, our Editor-in-Chief Michael Germanovsky says, “Some overdraft fees may be a result of mistakes or unauthorized transactions. Fortunately, it is a common policy for most banks to waive the overdraft fee if charges are proven unauthorized, as part of the zero liability protection offered by major credit card issuers. In the meantime, consumers may help themselves and their credit score by maintaining a low credit utilization ratio, leaving a significant cushion before their credit limit.”

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
Add to Favorites:

Related News:

The New Luxury Card App is Launched
The New Luxury Card App is Launched

Posted: March 18, 2019

Luxury Card has rolled out their new app, giving cardholders access to a variety of features and benefits including, finding one of a kind experiences and chat in real time with Luxury Card Concierge Specialists. These specialists can help… Continue reading

Credit Card Debt At its Highest Level
Credit Card Debt At its Highest Level

Posted: March 15, 2019

U.S. credit card debt has surpassed all previous years hitting a whopping $870 billion in December of last year. This upswing, which brought the level of consumer debt to its highest point to date, occurred when credit card balances went… Continue reading

Citi Prestige Credit Card Adds Cellphone Protection
Citi Prestige Credit Card Adds Cellphone Protection

Posted: March 14, 2019

Breaking or losing your smartphone can get expensive, but so can paying for insurance to cover it. This is something Citi knows well so they are adding cellphone protection to the Citi Prestige® credit card package starting May… Continue reading

Get the latest news, articles and expert advice delivered to your inbox. It's FREE.
Earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, and more up to the quarterly maximum, each time you activate.
For Excellent, Good Credit
INTRO OFFER: Discover will match ALL the Miles you've earned at the end of your first year, automatically. For example, if you earn 30,000 Miles, you get 60,000 Miles. That's $600 towards travel!
For Excellent, Good Credit
Earn unlimited 1.5% cash back on every purchase, every day
For Average, Fair, Limited Credit
You've successfully subscribed!

Please specify the following:All these fields are optional

Your Credit History
Themes you are interested in:

By providing this information you help us make our news letters more useful and informative. Thank you!