Released: July 12, 2007

Overdraft fees huge but hushed

Source: Kathy Kristof and Andrea Chang, Los Angeles Times (Free Registration)

Consumers are paying huge fees on short-term loans that cover them when they overdraw their checking accounts, under programs that banks and credit unions often enroll customers in without their knowledge, a new study says.

Fees to cover overdrafts are taking advantage of Americans’ rising use of debit cards to make even small purchases, the Center for Responsible Lending said in the study released on Wednesday. Debit cards typically draw directly on consumers’ checking accounts.

Consumers may be caught unaware that they are overdrawing their accounts, because they may assume that debit transactions simply wouldn’t go through if their accounts lacked sufficient funds, the center said.

The study, released hours before a House hearing on a bill that would require clear disclosure of overdraft charges, estimated that the programs cost consumers $17.5 billion in fees last year, up sharply from $10.3 billion two years earlier. The average charge for an overdraft loan: $34.

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