Consumers are paying huge fees on short-term loans that cover them when they overdraw their checking accounts, under programs that banks and credit unions often enroll customers in without their knowledge, a new study says.
Fees to cover overdrafts are taking advantage of Americans' rising use of debit cards to make even small purchases, the Center for Responsible Lending said in the study released on Wednesday. Debit cards typically draw directly on consumers' checking accounts.
Consumers may be caught unaware that they are overdrawing their accounts, because they may assume that debit transactions simply wouldn't go through if their accounts lacked sufficient funds, the center said.
The study, released hours before a House hearing on a bill that would require clear disclosure of overdraft charges, estimated that the programs cost consumers $17.5 billion in fees last year, up sharply from $10.3 billion two years earlier.
The average charge for an overdraft loan: $34.
The fees now exceed the $15.8 billion a year that banks temporarily lend customers via the overdraft programs, according to CRL, a nonprofit consumer advocacy group.
"At many banks and credit unions, customers are enrolled in abusive overdraft loan systems by default when they open checking accounts, often without their express consent," the study said.
At the hearing held by a subcommittee of the House Financial Services Committee, Rep. Carolyn B. Maloney (D-N.Y.) said the "now dominant practice of overdraft charges is anything but fair and transparent" for consumers.
But bankers who testified at the hearing said it wasn't difficult for customers to avoid getting dinged.
"Knowing how much is in their accounts is certainly something that consumers are in control of," said John Hall, a spokesman for the American Bankers Assn. "They know what checks they have written, the automatic payments they have authorized. Overdraft fees can clearly be avoided."
The increasing automation of overdraft programs has allowed a larger swath of Americans to receive an arguably valuable service, bankers said. They also said that although consumers might not have to sign a specific agreement acknowledging that they have the service, they are told of the services their checking accounts provide, and what they cost, when their accounts are opened.
