Banks make tens of billions of dollars in revenue every year on overdraft fees so it’s no surprise that many banks pitch it as a service to potential customers. However, most bank customers may not realize that there are a number of rules about overdraft. Another surprise is how poorly bankers themselves understand how it works and how confusing their explanations are when asked about it by customers.
Most people hate overdraft fees. In fact, 68% percent of those polled by Pew Charitable Trusts said they’d rather be declined at the register than overspend and get hit with overdraft fees. In 2010, federal bank regulators required banks to make overdraft optional: account owners are to be given the opportunity to opt in if they want it, and opt out any time after that if they don’t. But over half of those who are currently enrolled don’t remember signing up.
CRC and our colleagues at three other organizations across the country (Reinvestment Partners in North Carolina, New Economy Project in New York, and Woodstock Institute in Illinois) sent “mystery shoppers” to major banks to see how overdraft was presented to potential bank customers in four cities. You can read the full report here: HOW BANKS SELL OVERDRAFT: RESULTS OF OVERDRAFT MYSTERY SHOPPING IN FOUR KEY STATES
The results of the mystery shopping show:
- In all four cities, banks’ explanations of overdraft programs were highly inconsistent, and often unclear and incorrect. The inconsistent and erroneous information bank personnel provided to mystery shoppers raise concerns about banks’ training of staff and sales practices and suggest that banks may not be giving people the information they need to understand overdraft programs and make informed choices
- Bank employees often did not clearly or correctly explain how overdraft fees are triggered.The misinformation made it difficult or impossible for shoppers to understand the real costs of overdraft and make informed decisions.
- Bank employees frequently did not explain the opt-in requirement for ATM and debit courtesy overdraft, and led people to believe that it was an automatic account feature, raising serious concerns about whether the large banks are complying with federal regulations.
- In two of the cities, bank branches visited in predominantly non-white neighborhoods had limited staff availability and long wait times, in stark contrast to well-staffed branches in predominantly white neighborhoods. The poor service clearly affected the quality of assistance provided to customers in non-white neighborhoods.
The four organizations urge federal banking regulators and the CFPB to:
- Prohibit overdraft feeson all ATM withdrawals and debit card transactions.
- Limit the fees a bank may charge for overdrafts to an amount commensurate with the actual cost of the transaction to the bank and proportional to the actual amount overdrawn.
- Prohibit banks from reordering transactions to maximize overdraft fees.
- Prohibit banks from providing financial incentives to branch or bank employees for the sale of overdraft products to customers.
- Create a uniform standard for how banks should verbally describe overdraft products and fees.
- Require training of bank employees on the verbal explanation of overdraft standards and conduct periodic reviews of training and compliance.
- Limit the number of times a financial institutions may impose any type of overdraft charges to once a month, or a maximum of six charges in a 12-month period, whichever comes first.