Banks and credit unions continue to charge abusive overdraft fees, especially on debit card transactions, according to a new report from the Center for Responsible Lending.
The majority of the $16.7 billion in fees charged in 2011 were triggered by manipulative banking practices, the report alleged.
“High Cost Overdraft Practices,” the name of the CRL’s report, noted that many lenders ignored previous efforts by regulators to curb excessive charges.
In 2010, the FDIC advised the institutions it supervises that more than six overdraft charges a year is excessive. Yet CRL’s report finds that two-thirds of all debit card penalty fees come from account holders charged more than six fees annually.
The CRL report also showed the continued use of “reordering,” a process in which many financial institutions make the largest withdrawals count first rather than posting them lowest-to-highest or in the order actually received. Banks and credit unions often reorder withdrawals to trigger overdraft fees that otherwise would not have occurred.
On the whole, debit card transactions trigger the most expensive fees, with a median charge of $35 for a $20 overdraft. Debit card purchases and ATM transactions account for at least 35% of all overdraft fees. Research indicated that people of color, seniors, young adults and military families have been hit hardest by overdraft fees, the CRL report said.
The CRL – a subsidiary of the 50,000-member, $580 million Self-Help Credit Union in Durham, N.C. – also recently took on payday lenders.
In testimony before a Senate Special Committee on Aging in July, Rebecca Bornè, CRL’s senior policy counsel, told legislators that seniors are an especially attractive and vulnerable target for deceptive lending practices due to the fact that they almost always have regular Social Security income and often are faced with growing medical and living expenses.
Bornè added that the CRL’s research found that payday lenders take an average of 33% of a borrower’s next Social Security check to repay a loan.