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October 17, 2009
Group claims overdraft programs still a risk
By AARON LONDON
Staff Writer
http://www.news-journalonline.com/Ne...NT05101709.htm
While some banks have announced changes to their overdraft programs, officials at the Consumer Federation of America say the moves still don't provide enough protections for consumers.
"None of the largest banks reduced their overdraft fees, which average $35 per overdraft, or dropped sustained overdraft fees tacked on if consumers cannot repay in just days," said Jean Ann Fox, director of financial services for the consumer group, in a news release. "For a $100 overdraft repaid in one week at that $35 fee, consumers are paying 1,820 percent APR if computed in the same way as a short-term loan. A single $10 overdraft can still cost up to $70 if not repaid in just five days."
The consumer group said that the overdraft programs are an extension of credit but banks are not required by the Federal Reserve Board to comply with credit laws that apply to other short-term cash loans.
"As a result, consumers are permitted to overspend their checking accounts without affirmative consent, do not get comparable cost-to-borrow information and are not warned when a transaction will trigger an overdraft," the consumer group said.
Chi Chi Wu, an attorney for the National Consumer Law Center, said overdraft loans "are one of the most expensive and exploitative credit products on the market" and recently announced changes in those programs by some banks will do little to reduce costs to consumers.
"A few limited reforms by a half dozen banks aren't going to stop the abuses," Wu said. "These reforms are too little and too late, coming after years in which banks made billions off of overdraft abuses."
The consumer group said part of the financial regulatory reform proposals under consideration should contain protections for consumers from overdraft loan programs.
"The Consumer Financial Protection Agency under consideration this month by the House Financial Services Committee is needed to restore consumer protections to bank overdraft lending," said Travis Plunkett, legislative director at the Consumer Federation.
The consumer group said overdraft programs are very similar to payday loans, offering the following similarities:
· Both require borrowers to have a bank account.
· Both are based on borrowers writing a check or authorizing a debit for more than the borrower has in the bank.
· Both are due and payable within a few days.
· Both require balloon payments of the full amount of the loan and the fees.
· Both loans cost triple or quadruple-digit interest rates.
· Both put borrowers in a debt trap.
· Failure to immediately repay loans sets off a cascade of other fees.
· Both products put consumers at risk for losing their bank accounts.
"The Consumer Financial Protection Agency will monitor these types of transactions and provide a floor for protections for consumers so that Americans are not left to the mercy of the banks to decide on fundamental protections and fair transactions going forward," Plunkett said.
aaron.london@news-jrnl.com
Group claims overdraft programs still a risk
By AARON LONDON
Staff Writer
http://www.news-journalonline.com/Ne...NT05101709.htm
While some banks have announced changes to their overdraft programs, officials at the Consumer Federation of America say the moves still don't provide enough protections for consumers.
"None of the largest banks reduced their overdraft fees, which average $35 per overdraft, or dropped sustained overdraft fees tacked on if consumers cannot repay in just days," said Jean Ann Fox, director of financial services for the consumer group, in a news release. "For a $100 overdraft repaid in one week at that $35 fee, consumers are paying 1,820 percent APR if computed in the same way as a short-term loan. A single $10 overdraft can still cost up to $70 if not repaid in just five days."
The consumer group said that the overdraft programs are an extension of credit but banks are not required by the Federal Reserve Board to comply with credit laws that apply to other short-term cash loans.
"As a result, consumers are permitted to overspend their checking accounts without affirmative consent, do not get comparable cost-to-borrow information and are not warned when a transaction will trigger an overdraft," the consumer group said.
Chi Chi Wu, an attorney for the National Consumer Law Center, said overdraft loans "are one of the most expensive and exploitative credit products on the market" and recently announced changes in those programs by some banks will do little to reduce costs to consumers.
"A few limited reforms by a half dozen banks aren't going to stop the abuses," Wu said. "These reforms are too little and too late, coming after years in which banks made billions off of overdraft abuses."
The consumer group said part of the financial regulatory reform proposals under consideration should contain protections for consumers from overdraft loan programs.
"The Consumer Financial Protection Agency under consideration this month by the House Financial Services Committee is needed to restore consumer protections to bank overdraft lending," said Travis Plunkett, legislative director at the Consumer Federation.
The consumer group said overdraft programs are very similar to payday loans, offering the following similarities:
· Both require borrowers to have a bank account.
· Both are based on borrowers writing a check or authorizing a debit for more than the borrower has in the bank.
· Both are due and payable within a few days.
· Both require balloon payments of the full amount of the loan and the fees.
· Both loans cost triple or quadruple-digit interest rates.
· Both put borrowers in a debt trap.
· Failure to immediately repay loans sets off a cascade of other fees.
· Both products put consumers at risk for losing their bank accounts.
"The Consumer Financial Protection Agency will monitor these types of transactions and provide a floor for protections for consumers so that Americans are not left to the mercy of the banks to decide on fundamental protections and fair transactions going forward," Plunkett said.
aaron.london@news-jrnl.com
