If you’ve ever been unlucky enough to go into overdraft (if you decided to opt in), then you know how high the fees can be, even for small purchases. The Consumer Financial Protection Bureau seems to agree. The watchdog released a report, citing concern about expensive overdraft fees for debit card and ATM transactions.
The report showed that many debit card overdraft fees are triggered by transactions of $24 or less. Most consumers repay overdrafts within three days.
“Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate (APR),” said the CFPB in a statement.
The CFPB finds that among the banks in its study, overdraft fees are helping some financial institutions make significant profits. These fees often make up more than half of the fee income on consumer checking accounts. Furthermore, the bureau’s report showed that roughly 8% of accounts are hit with the majority of overdraft fees.
Some of the report findings:
• The study found that 18% of consumers who chose opted-in have overdrafted more than 10 times per year, compared to 6% for non-opted-in accounts.
• Opted-in accounts are almost twice as likely to have at least one overdraft transaction per year.
• Consumers who choose to opt in pay seven times more in overdraft and non-sufficient funds fees per year.
• On average, opted-in accounts pay almost $260 per year in overdraft and non-sufficient fees compared to just over $35 for non-opted-in accounts.
The CFPB is in the process of deciding on the best plan of action for shielding consumers from unfair overdraft pricing.