WASHINGTON, D.C. — Stephen Hall, Legal Director and Securities Specialist, issued the following statement on the filing of a joint comment letter from more than 140 organizations in strong support of a proposed rule from the Consumer Financial Protection Bureau (CFPB) that will curb overdraft fees by the large banks.

“This rule is a plus on every level. It will halt the abusive practice among large banks of charging overdraft fees that bear no relationship to the banks’ costs, that represent exorbitant interest rates, and that seriously burden the financially vulnerable.  It will also promote the kind of transparency that leads to more fair competition among banks.  We were pleased to join with the National Consumer Law Center and a broad swath of consumer, civil rights, and other public interest groups to express support for the rule.

“As explained in the letter, large banks typically charge $35 for each overdraft, far in excess of the minimal cost to the financial institution of covering an overdraft. That is a punitive amount, especially since the majority of debit card overdrafts are for less than $26 and are repaid within three days, translating into an annual percentage rate of over 16,000%. Almost one in five consumers incur overdraft fees each year, costing them billions annually. This burden falls most heavily on lower-income families and communities of color, for whom the fees can represent a huge portion of their available funds.

“The rule also gives banks flexibility.  Under the rule, they can continue to provide ‘courtesy’ overdraft services or links to saving accounts, without charging any fee or at most a modest ‘benchmark’ fee to cover their costs. And if banks want to offer overdraft credit, they can do so as long as they comply with the same protections required of credit card issuers, including transparent disclosures, ability to pay assessments, and periodic statements.  While the large banks account for over two-thirds of all overdraft fees, the letter urges the CFPB to fashion an appropriate rule extending similar protections for customers of smaller banks.”

You can find the comment letter here.

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