Bank Overdraft Fees News and Analysis

Within the last decade, American businesses discovered that subscription revenue is among the best. Once the customer is signed up, there is little to no marketing cost to keep the money flowing.

From the consumer’s standpoint, subscription fees aren’t a budget buster since many are often $10 or less each month. But consumers who sign up for multiple subscriptions soon find that these fees quickly add up.

When he leased a new Tesla at a monthly cost of $511, Chris Kornelis started looking for things he could eliminate from his budget. Writing in the Wall Street Journal, Kornelis said he focused on eliminating subscriptions – including his cable TV service – until he had covered the monthly lease payment.

“Paying for cellphone service is like paying the water bill: something I did without protest and never really thought twice about,” Kornelis wrote. “But I’d started to get curious about the ads I’d been seeing for low-cost services like Boost Mobile and Cricket Wireless.”

He said he ditched AT&T, that was costing $128 a month for two lines, and picked up Mint Mobile at a cost of about $65. Before long, he had carved $511 from his budget.

 “If there is a downside to making this move, I have yet to notice it,” Kornelis wrote.

Unused streaming services

With inflation eating into consumers’ buying power over the last three years, cutting back on monthly subscription costs could provide some breathing room. Streaming services may be the first place to look.

A survey by Bango, an enterprise software provider, found that the typical consumer spends nearly $1,000 per year on streaming service subscriptions. That’s about $80 a month, which could buy a lot of groceries.

These costs will only go up in the future. Netflix and many other streaming services have raised subscription rates, justifying it by saying they need additional capital to invest in programming.

Meanwhile, there is a lot of free content available, supported by commercials. For example, the Roku Channel is a free streaming service provided by Roku, which offers a wide selection of content, including over 350 live TV channels and 80,000 movies and TV shows. 

Free content

Other free services include:

• Pluto TV: This service provides a mix of live and on-demand content, including movies, TV shows, and channels designed to replicate the experience of traditional live TV.

• Freevee: Owned by Amazon, Freevee offers a range of movies and TV shows without a subscription fee. It was previously known as IMDb TV and is available in the U.S., UK, and Germany.

• Crackle: Crackle is known for its selection of original content, classic shows, and a variety of movies. It is a free service that does not require users to purchase the content.

• Vudu: While Vudu is primarily known as a service for renting and buying digital movies and TV shows, it also offers a selection of free content P.

• Hoopla and Kanopy: These services are free for users with a library card from a participating library. They offer a wide range of movies and some TV shows.

Streaming services aren’t the only subscriptions that could be weighing down your budget. Consumers often sign up for credit monitoring and other services, and then forget about them.

There are several available apps that can find these forgotten subscriptions and make it easier to cancel them. Subscription Stopper and Manger is a free app whose maker claims it to be “the all-in-one app designed to effortlessly manage and cancel subscriptions.”

The banks and the credit card companies can’t say they weren’t warned. Only six weeks after the CFPB made it known that it wasn’t happy with the late fees they were charging consumers, it has officially lowered the boom.

The agency is finalizing a rule that will reduce typical late fees from a $32 average to, in most cases, $8. If things go the way the CFPB postures the move, American families who’ve been subjected to these fees will save an average of $220 a year.

Crawling from the wreckage

The genesis of this issue goes back more than a decade ago when Congress voted to pass the CARD Act to clean up widespread abuses in the credit card industry – one of those abuses being excessive penalties like late fees.

In the law, Congress allowed credit card companies to charge “reasonable and proportional” fees to incentivize on-time payment and cover the costs associated with late payments. 

But the responsibility of regulating the law was squarely on the shoulders of the Federal Reserve Board of Governors and it failed miserably when it gave financial institutions some wiggle room on what was “reasonable and proportional” as long as they stayed below a certain threshold. It was that loophole that got us here and the one the CFPB decided to close.

One big loophole equals tens of thousands of complaints

The spillage was over the top, to say the least. In ConsumerAffairs' analysis of CFPB complaints, there have been 12,330 about credit card or prepaid card fees over the last three years. 

Consumers paid for that dearly, too -- on average, charges of $138 per year per card, and many consumers have multiple credit cards.

The status quo makes late fees an irresistible revenue stream. Just ask Mandora of Mt. Vernon N.Y., who claimed in a review of Credit One Bank on ConsumerAffairs that when their payment was due on the 28th, they did what seems fair -- they paid it on the 28th.

But Mandora says paying on time wasn't good enough for Credit One.

"They charged me a $30 late fee because they said I did not pay it before 5 o'clock p.m., I paid an early payment on July 3rd of 130.00. My payments are only 30.00. They said it didn't count for July because the billing cycle starts after the 5th of July and that I would still owe July 28th payments. How can they do this to people and get away with it?"

'What's in your wallet -- more fees?'

What credit card providers chalk up the most fee-related complaints at the CFPB? Topping the list is Capital One.

Next is Bread Financial Holdings, Inc. You might not recognize that name, but it provides card programs for retail brands such as Ulta, Victoria’s Secret, the NFL, AAA, Academy Sports, Ann Taylor, Arhuas, Big O Tires, Bealls, Burlington, BuyBuyBaby, DSW, Dell, Forever 21, J. Crew, IKEA, Eddie Bauer, Lexus, Lane Bryant, Land's End, Petco, Toyota, Wayfair, and Zales.

Coming in third is Synchrony Financial, another sort of anonymous lender, but like Bread, it has partner cards in place with lots of big brands: Ashley Furniture, MattressFirm, Dick's Sporting Goods, Walgreens, Rheem, HSN, Crate & Barrell, and others.

When will all of this officially be in the consumer’s favor?

The effective date of the final rule will be 60 days after publication of the rule in the Federal Register. However, the CFPB encourages consumers not to wait if they sense their bank or credit card company is overstepping their bounds, especially when it comes to fees.

If that’s you, your chances are good that you'll receive either a full explanation from the bank/credit card company, which happens 67% of the time, or monetary relief, which 27% of complaining consumers receive.

You can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Just like ninjas in the middle of the night, overdraft fees are sneakily draining hundreds of dollars from hardworking families each month.

But if you ask anyone at the White House or the Consumer Financial Protection Bureau (CFPB), these aren't harmless pranks perpetrated by banks. Instead, they’re burdening Americans already on tight budgets.

According to the administration, overdraft fees are nothing more than exploitation and come what may, they’re taking yet another shot to limit the practice.

On Wednesday, the CFPB proposed a rule to rein in excessive overdraft fees – a gambit that would close a loophole that exempts overdraft lending services in the Truth in Lending Act and other consumer financial protection laws. 

The CFPB has been busy trying to find the one single move that works its magic. The agency had already ordered Wells Fargo to pay an unprecedented $3.7 billion for overdoing it with overdrafts. It even tried to play nice and wrote up guidance so banks could avoid fines by doing the right thing. Still, nothing happened. 

As things stand now, consumers are paying nearly $9 billion in overdraft fees – more than $2.3 billion to just 10 large banks in 2023.

What would change

As things stand now, many of the larger banks commonly charge about $35 per overdraft. Those banks include JP Morgan/Chase, Wells Fargo, Truist, and Regions Bank.

Under the proposal, large banks could still charge overdraft fees, but not anywhere near $35, and only if they agree to comply with lending laws, including disclosing any applicable interest rate.

What appears to be preferable in the CFPB’s mind is a reasonable fee to recoup their costs at an established benchmark. However, they’d have to show their data and prove their reasons for the fee.

The agency said it’s flexible on the fee that banks choose and proposed benchmarks of $3, $6, $7, or $14 -- less than half of what customers are paying now.

U.S. Public Interest Research Group's (PIRG) consumer campaign director Mike Litt said his group fully supports the proposed rule.

“It’s long overdue to rein in overdraft fees," he said. If the CFPB’s proposed rule takes effect, overdraft fees will be more reasonable and in line with the actual costs to banks."

In practice, Litt said overdraft fees have functioned as "high-cost credit," so it only makes sense to regulate excessive fees as such. 

Where you live may determine whether you get hit with sky-high interest rates and junk fees. A new report from the National Consumer Law Center (NCLC) calls out the states with the most lax consumer protections and salutes the states that have increased consumer protection.

The report says residents of North Carolina, Alabama and Oklahoma are the most vulnerable. NCLC says Alabama recently amended its consumer lending laws to allow new junk fees while North Carolina increased both the allowable interest rate and the amount of a junk fee for “processing” a loan. 

In Oklahoma, borrowers taking out a two-year loan of $2,000 could now pay a maximum annual percentage rate (APR) of 54%, an increase from 34%. NCLC says the state also increased the interest rates allowed under its more general consumer loan law.

The report says residents of Colorado, Connecticut and Minnesota recently got stronger protections. All three states have “significantly” strengthened protections against lenders that violate consumer lending laws.

For example, Minnesota eliminated triple-digit rates on payday loans and Colorado reduced the allowable APR on certain small short-term loans.

>> Need cash for the holidays? See your best loan rate now.

Most states are moving in the right direction

The good news is 45 states and the District of Columbia now cap interest rates and loan fees for at least some consumer installment loans, depending on the size of the loan. 

“We recommend an airtight 36% APR cap for small loans and lower limits for larger loans,” said Carolyn Carter, NCLC’s deputy director and one of the authors of the report. “High-interest loans add to debt, increase families’ financial struggles, drive borrowers out of the banking system, and exacerbate existing disparities.”

Without those limits, Carter says exploitative lenders will set up shop in a state, “overwhelming the responsible lenders and pushing abusive loan products that trap low-income consumers in never-ending debt.”

Recommendations 

NCLC recommends that state regulators take these steps to protect borrowers:

• Cap APRs at 36% for smaller loans, such as those of $1,000 or less, with lower rates for larger loans.

• Prohibit loan fees or strictly limit them, to prevent fees from being used to undermine the interest rate cap and acting as an incentive for loan flipping.

• Include all payments in the APR calculation, whether or not they are deemed “voluntary.” Some lenders have tried to disguise fees as purportedly voluntary “tips,” expedited fees, or donations.

• Prevent loopholes for open-end credit. Rate caps on installment loans will be ineffective if lenders can evade them through open-end lines of credit with low interest rates but high fees.

• Ban the sale of credit insurance and other add-on products, which primarily benefit the lender and increase the cost of credit.

• Examine consumer lending bills carefully. Predatory lenders often propose bills that obscure the true interest rate, for example, by presenting it as 24% per year plus 7/10ths of a percent per day instead of 279%. Or the bill may list the per-month rate rather than the annual rate. Get a calculation of the full APR, including all interest, all fees, and all other charges, and reject the bill if it is over 36%.

• Include anti-evasion provisions to prevent lenders from laundering their loans through out-of-state banks to evade state rate caps or disguising their loans as sales, wage payments, or other devices.

Consumers who find themselves in a financial bind have a growing number of options. Personal loans usually have interest rates that are lower than many credit cards. ConsumerAffairs analyzed 24 lenders and picked the seven best here.