Feds finally to look at the danger of overdraft fees

WASHINGTON — The Consumer Financial Protection Bureau announced Wednesday that it will use new powers granted by last month’s Senate appropriations bill to take a broader look at banks’ overdraft practices.

One provision in the spending bill directs the C.F.P.B. to scrutinize the type of overdraft protection that banks offer their customers, “especially to people with lower incomes,” and to “properly assess” the risks of those products.

In a statement, C.F.P.B. Director Richard Cordray called it “a step toward fairness and responsibility in the financial services industry.”

“As we learned this year, the rulemaking process can drag on and get drawn out. This targeted approach will help us cut through the false economy and unnecessary complexity of overdraft protections in a sensible and practical way,” Cordray said.

Consumers nationwide have complained about overdraft practices since the 2006 enactment of the law known as the CARD Act, which made it more difficult for banks to set a limit on spending. A recent government survey of checking account customers found that 35 percent of the people who overdrew had done so in a month more than once.

In response, many banks adopted overdraft protection, which requires a fee to cover transactions made by customers who have insufficient funds in their accounts. Banks say that many of those transactions are intended for small amounts, and that they also warn customers that an overdraft could result in a hefty bill. Some banks are also charging large amounts of fees for small transactions.

Critics say that millions of Americans face overdraft fees every year. Banks have claimed, however, that those fees do not reflect what many people pay for checking accounts.

Groups in both parties and independent agencies, including the C.F.P.B., have expressed support for breaking up banks into smaller, more manageable firms, which could save them money. The Senate appropriations bill specifically sought to broaden the scope of the C.F.P.B.’s oversight.

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