Remember when we heard all those stories about bank customers whose accounts were overdrawn by as little as $5, yet they were charged up to $35 in fees for each transaction made when accounts were empty?
The Consumer Federation of America examined the fees and practices of 14 of the largest banks in the two years since Federal Reserve Board rules were implemented to require banks to get permission from consumers before covering ATM and debit card overdrafts and levying steep fees for the service.
The worst offense: in end-of-the-day processing of transactions, 11 of the 14 banks continued to put them through in the order of largest to smallest, not in the order they were received. That increases the risk that people with low balances will overdraw their accounts with the first transaction-forcing them to pay overdraft fees for that one and then for subsequent transactions of the day.
"Consumers can be charged up to $370 in one day, according to the maximum fee and daily limit fee policies that banks have," says Jean Ann Fox, director of financial services for CFA.
She called bank overdraft loans a form of payday lending, because short-term borrowing fees are computed in the same way. So CFA calculated how much a customer would pay in annualized interest at each of the banks for overdrawing $100 and then repaying it in two weeks. Some of the numbers are astounding.
The prize for the highest rate, 2,779 percent, goes to RBS Citizens Bank. Fifth Third Bank previously held the record, at 3,250 percent, but this rate will drop to a mere 962 percent on June 27, when the bank discontinues charging a daily sustained overdraft fee.
To be sure, consumers for the most part have benefited from a drop in fees since the federal regulations went into effect in 2010. But as you can see, other fees have been heading back up.
Here are some other findings of CFA's study:
- The typical overdraft fee remained at $35 per transaction but two of the largest banks-U.S. Bank and Fifth Third Bank-have announced changes to their fee structures that will likely result in higher charges.
- Nearly two-thirds of the banks studied pile on second fees or per-day fees if consumers do not repay overdrafts immediately. For example, SunTrust charges $36 on the seventh day that an overdraft remains unpaid, while RBS Citizens charges $6.99 per day on the fourth through 13th day that an overdraft is owed.
- Over 85 percent of banks set a threshold to trigger overdraft fees, such as $5 total overdrawn in a day. U.S. Bank sets the highest threshold at $10 while four banks (Bank of America, Citibank, HSBC, and RBS Citizens) charge fees if the account is overdrawn by less than a dollar.
- Five banks-Fifth Third, PNC, RBS Citizens, SunTrust, and U.S. Bank-charge fees that vary depending on how many overdrafts take place in 12 months.
- All the banks surveyed banks except HSBC set a limit on the number of overdraft fees that can be charged in a single day, ranging from three at JP Morgan Chase to 10 at Fifth Third Bank. Regions and SunTrust charge up to six in one day.
- Three banks-Bank of America, Citibank, and HSBC-do not permit customers to overdraw their accounts when using a debit card to make purchases or ATM withdrawals, so therefore no fees are triggered. The other 11 banks encourage their customers to opt in so that the banks cover these overdrafts and charge fees.
Photo credit: Paul Lowry at Flickr.com