Consumer watchdog eyes overdraft fees

"Our findings raise concerns about the number of consumers who are incurring heavy overdraft fees or account closures, and the wide variations across institutions indicate that certain practices and procedures merit further analysis," CFPB Director Richard Cordray said. "We need to determine whether they are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent."

Cordray said the report represented a "first step" toward investigating how overdraft policies affect consumers.

Senior administration officials did not rule out new regulations on overdraft fees, though they noted that they were not currently considering them.

The bureau's 72-page report found that financial institutions use different procedures for charging overdraft penalties, which account for 61 percent of all checking account fees. Some institutions have caps on the number of fees that can be charged in a single day, while others have no limit.

Institutions also vary in the way they apply the fees and the order in which transactions are penalized — a potentially important distinction for a consumer who empties their checking account with both large and small fees.

The average consumer who overdrew their account paid $225 in fees over the course of 2011, according to the report.

Since 2010, consumers have had to specifically allow their financial institution to allow overdrafts on ATM withdrawals and debt card charges. Unless a consumer opts in, a transaction with insufficient funds will be denied.

The rates for opting in vary dramatically, however, according to the report. At some banks, more than 40 percent of new customers opted in to the overdraft protections, while others saw participation rates of less than 10 percent.