Consumer Financial Protection Bureau looks at overdraft fees

WASHINGTON - Have you been hit by a costly overdraft fee? The government’s new consumer watchdog is looking into the fees charged by banks. The Consumer Financial Protection Bureau’s director said at a speech that he will ask banks to hand over data on how these fees impact customers, how the protection is marketed, and the information consumers receive.

“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” CFPB Director Richard Cordray said in a statement. “We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

Overdraft fees hit consumers when they spend more money than they have in their account. The fees average between $30 and $35 a transaction.

Starting in 2010, a new rule from the Federal Reserve barred banks from automatically enrolling consumers in overdraft programs for debit and ATM transactions. You had to opt in to the service. The rule does not apply to checks, online payments, or recurring debts.

The CFPB said its inquiry will cover four areas including the reordering of transactions. That’s when a bank doesn’t process your debits in the order in which they were received. This practice has been the topic of class action lawsuits. Sometimes the debits are reordered so the largest amount is processed first and then the consumer is hit with more fees.

The inquiry will also look at missing or confusing information. The CFPB wants to make sure consumers understand how to avoid these fees. Marketing will also be targeted as the CFPB says the number of consumers who choose overdraft protection varies widely from bank to bank. Also, the people who are impacted by these fees will be evaluated to see if they disproportionately effect low-income and young consumers.

The results could lead to new policies, education, new rules, legal action or guidance for banks.