December 3, 2008

FDIC: Overdrafts hit vulnerable consumers

A Federal Deposit Insurance Corp. survey found that young and poor depositors were hit with the majority of overdraft fees by U.S. banks.

The 18-month study also found about 25 percent of bank consumers pay overdraft fees, USA Today reported Wednesday.

In the survey, which covered only FDIC-regulated banks, overdraft fees made up 74 percent of service charges for deposit accounts at U.S. banks in 2006.

The most vulnerable consumers are getting hit with these fees, said Chi Chi Wu of the National Consumer Law Center.

The survey said most banks enroll depositors in overdraft programs automatically with some making the programs mandatory. Fees for overdrafts, which earned banks in the survey $1.97 billion of their $2.66 billion in deposit account service charges, ran as high as $38 per overdrawn transaction.

Center for Responsible Lending estimated U.S. banks take in $17.5 billion each year in overdraft fees.

The Federal Reserve said it is working on a rule change that would allow depositors to opt out of overdraft programs.

Rep. Carolyn Maloney, D-N.Y., has proposed a bill that goes one step farther, requiring banks to enlist only customers who knowingly sign up for the service, the newspaper said.