October 5, 2009
Contact:
Jean Ann Fox
928-772-0674
Consumers Still At Risk from Bank Overdraft Loans
Big Bank “Reforms” Fail to Protect Customers, Consumer Financial Protection Agency
(CFPA) Needed
Washington, DC --- Announced changes to overdraft programs at the nation’s largest
banks will not protect American consumers from exorbitantly expensive short-term loans or
extend federal consumer protections to the most expensive loans banks make.
“None of the largest banks reduced their overdraft fees, which average $35 per overdraft,
or dropped sustained overdraft fees tacked on if consumers cannot repay in just days,” noted Jean
Ann Fox, Director of Financial Services for the Consumer Federation of America. “For a $100
overdraft repaid in one week at that $35 fee, consumers are paying 1,820 percent APR if
computed in the same way as a short-term loan. A single $10 overdraft loan can still cost up to
$70 if not repaid in just five days.”
Banks extend credit when they cover overdrafts for a fee. However, the Federal Reserve
has failed to require banks to comply with the credit laws that apply to other short-term cash
loans. As a result, consumers are permitted to overspend their checking accounts without
affirmative consent, do not get comparable cost-to-borrow information, and are not warned when
a transaction will trigger an overdraft. Banks do not provide affordable installment repayment
terms for these loans, but take payment in full out of the next deposit into an account, making the
bank first in line for a consumer’s next paycheck or Social Security payment.
“Overdraft loans are one of the most expensive and exploitative credit products on the
market,” remarked Chi Chi Wu, National Consumer Law Center Staff Attorney. “A few limited
reforms by a half dozen banks aren’t going to stop the abuses. These reforms are too little and
too late, coming after years in which banks made billions off of overdraft abuses.”
Recently announced chan