Overdraft Fees, Consumer Debt, and Bankruptcy

Do overdraft fees ever add up to such an extent that consumers have to consider filing for personal bankruptcy? According to a recent article in The Washington Post, “the country’s largest banks have increased the amount they collect from consumers in overdraft fees . . . just as regulators are considering whether to issue rules that would rein in their use.” Are overdraft fees and related charges really such a big problem? How much do overdraft fees actually cost consumers? To better understand the harm that overdraft fees can cause, it is important to look at some of the recent research reported by the Consumer Financial Protection Bureau (CFPB) in the article in The Washington Post.
Increase in Overdraft Fees Collected by Banks
Do banks often unfairly charge consumers overdraft fees? According to the article, the CFPB has been looking into “how banks levy overdraft fees on customers who bounce checks or withdraw more than they have in their accounts using debit cards or automated teller machines.” What did the government agency find? The director of the CFPB, Richard Cordray, emphasized that these overdraft fees “have become a significant source of industry revenues,” and in some cases, they can even lead a consumer to file for Chapter 7 bankruptcy.
In recent years, many of the banks in the United States have upped their overdraft fees. For example, Wells Fargo overdraft fees rose by 16% from last year. While overdraft fees did not rise by as much for Bank of America and JPMorgan Chase, those banks nonetheless increased overdraft fees by 6% from the same time last year.
In total, if we look at “the amount collected by the more than 600 banks included in the Federal Deposit Insurance Corporation,” we see that the revenue collected from overdraft fees rose to $2.7 billion (which represents an overall rise of 6%). During the first quarter, Bank of America collected a total of $393 million in overdraft fees.
Consumer Financial Protection Bureau Targets Overdraft Fees
Is it fair for these banks to charge customers high sums when they bounce a check or overdraw a checking account through an ATM withdrawal? The CFPB plans to issue possible rules to curb overdraft fees and the manner in which they are levied.
As the article clarifies, this is not the first time that the CFPB has targeted overdraft fees being charged by banks. Back in 2010, “regulators forced banks to get consent before charging customers for ATM and debit card transactions that exceed their accounts.” Why are federal regulators and consumer advocates so concerned about the costs of overdraft fees? A 2015 report from Pew Charitable Trusts showed that overdraft fees are costing Americans a lot of money. For the average consumer who overdrafts an account “at least three times a year,” the cost in fees totals “nearly a full week’s worth of annual household income.”
For some of these bank customers, the overdraft fees—many of which result from automatic bill withdrawals—end up costing thousands of dollars in the long run. For example, one customer surveyed in the article ended up with more than $1,400 in debt from overdraft fees after only two months of financial difficulty.
If you are having difficulty making payments on your bills or have concerns about your mounting debt, an experienced Oak Park bankruptcy lawyer can discuss your options with you. Contact the Emerson Law Firm today for more information.
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