The two-year period of flat fees coincided with the implementation the Federal Reserve’s opt in provision of Regulation E, which requires financial institutions to receive consumer approval prior to debit card and ATM overdrafts.
While the typical overdraft fee remains at $35 per transaction, two of the largest banks, U.S. Bank and Fifth Third Bank, have announced changes to their tiered fee structures that indicate rates will rise.
“Big bank overdraft fees for a single transaction are very high, ranging from $33 to $37 at the largest banks,” said Jean Ann Fox, director of financial services for CFA. “Consumers can be charged up to $370 in one day, according to the maximum fee and daily limit fee policies that banks have.”
Five banks – Fifth Third, PNC, RBS Citizens, SunTrust and U.S. Bank – charge tiered fees that vary depending on how many overdrafts are incurred in a 12-month period.
Starting in late June, Fifth Third Bank will charge $37 per overdraft after a $25 fee is assessed for an initial overdraft transaction. This replaces the bank’s current policy of charging a $33 fee for the second, third, and fourth overdrafts in a 12 month period.
The CFA survey found that almost two-thirds of banks charge second or per-day fees if consumers do not repay overdrafts immediately.
The survey also revealed changes regarding overdraft processing order. As recently as 2010, CFA found that almost all major banks paid transactions from the largest to the smallest received, or reserved the right to do so.
Since 2010, several banks have changed their processing order policies, notably paying time-stamped transactions in the order they are received, before processing checks and other transactions from largest to smallest.
According to the survey, the highest cost for a $100 overdraft loan repaid in two weeks, if computed like a closed-end payday loan, is 2,779% APR at RBS Citizens Bank. Fifth Third Bank previously held the record for the highest overdraft charge, at 3,250% APR, but this rate will drop to 962% on June 27, when the bank will discontinue charging a daily sustained overdraft fee.
“Bank overdraft loans are a form of payday lending,” Fox said. “Banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.”
Fox urged consumers to tell the Consumer Financial Protection Bureau about their bank overdraft experiences and encourage the bureau to “crack down on these abusive loans.”
Comments on overdrafts are due to the CFPB by June 29.