Dem senators praise consumer bureau probe of overdraft fees

A new initiative to scrutinize banks' usage of overdraft fees is earning high praise from a pair of Democratic senators.

Sens. Dick Durbin (Ill.) and Jack Reed (R.I.) hailed the new project begun by the Consumer Financial Protection Bureau (CFPB) Wednesday, saying it was high time that banks came clean about these types of fees.

"When consumers have upfront, honest information about financial product fees and terms, they are able to make better financial decisions," Durbin, the Senate Majority Whip, said.

"So-called overdraft ‘protection’ fees can seem like an oxymoron when they cost consumers $40 in penalties for overdrawing on a $2 dollar cup of coffee," Reed added. "These fees didn't even exist 15 years ago, but today banks make billions of dollars off them, and I hope the CFPB’s investigation will spur stronger consumer protection standards."

The CFPB announced Wednesday it was launching a special project devoted to the fees, which accrue when a checking account holder attempts to withdraw more than what is in their account. In particular, it was looking into whether banks were confusing consumers regarding the fees, and whether those fees were disproportionately affecting lower-income borrowers.

In rolling out the program, the CFPB cited a 2008 study by the Federal Deposit Insurance Corporation that found that consumers who paid overdraft fees 20 or more times a year ended up paying on average $1,610 in overdraft fees.

CFPB Director Richard Cordray said Wednesday that less than 10 percent of checking account customers account for 84 percent of all overdraft fees, and that they tend to be lower-income or younger.

"We are concerned that overdraft practices employed by some banks unnecessarily increase consumer costs by making it difficult to anticipate and avoid fees," he said at an event at Hunter College in New York.

The CFPB, which was created by the Dodd-Frank financial reform law, also is looking into establishing a so-called "penalty fee box," which would clearly lay out exactly how much a customer has paid out in overdraft fees and would accompany every checking account statement.

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