Surprise Overdraft Fees: A Challenge for US Consumers

Only 22% of consumers expected their most recent overdraft fee

A new report released by the Consumer Financial Protection Bureau (CFPB) reveals that many people in the United States are surprised by overdraft fees.

According to the report on banking habits of American consumers, only 22% of respondents had expected their most recent overdraft fee. The report indicated 43% of consumers were surprised when their account was overdrawn and they were hit with a fee.

The report also revealed that in 25% of households in the United States, at least one person was hit with an overdraft fee in the past year.

“Our research finds that American families are paying fees they do not expect, even when they have access to cheaper forms of credit,” said CFPB Director Rohit Chopra.

The report suggests a lack of clear communication about when overdraft fees are triggered and how much customers are charged. The CFPB points out that overdrafts are exempt from the federal Truth in Lending Act, so banks do not have to reveal the cost of an overdraft as a form of credit. These fees can carry high effective interest rates if annualized.

In 2022, Regions Bank was fined $200 million for surprise overdraft fees.

An investigation into the surprise fees revealed:

From August 2018 through July 2021, Regions charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases. The bank charged overdraft fees even after telling consumers they had sufficient funds at the time of the transactions.

The CFPB has worked in recent years to curtail surprise overdraft fees and has targeted overdraft fees as among "junk fees" it hopes to reduce or eliminate in the financial marketplace.

Photo byMoney KnackonUnsplash