A Multi-Ethnic Public Policy, Research and Advocacy Institute

New Comparison of California Bank Fees Released as Banks Use Scare Tactics To Dissuade Customers From Opting Out of Fees; Fed Urged to Require Reforms If Banks Don’t Act

Contact: Bruce Mirken, Greenlining Institute Media Relations Coordinator, 510-898-2053

BERKELEY, CALIFORNIA — Over the next few months, banks will be required to have customers opt-in to overdraft protection and the stiff fees that come along with it, but a new report released today by The Greenlining Institute finds that these  fees continue to be excessive and confusing, while some banks seem to be using scare tactics to discourage customers from opting out. The report, which includes a new comparison of the overdraft fees and policies of major California banks, urges banks to voluntarily  reduce and simplify their fee structures, and asks the Fed to require such changes if banks do not act voluntarily.

Key findings and recommendations include:

* Fees wildly vary between banks, and can generate shockingly high charges. At one bank, a few dollars in overdrafts in one day can generate $161 in fees, while at some institutions the same overdrafts would result in no fees at all.

* Many banks still use a practice known as “reordering charges” — processing the largest transactions first in order to maximize the overdraft fees charged.

* Confusion about fees and policies is common, even among bank employees, and may push some consumers toward services such as payday lenders and check-cashing businesses whose costs are actually much greater, but which may be simpler to understand.

* A new rule requiring that bank customers “opt-in” to overdraft protection and the stiff fees that come with it is a positive step, but some banks are using scare tactics to frighten customers out of declining these costly charges. At least one marketing firm is actively promoting services aimed at helping banks “maximize fee income” by discouraging opt-outs.

* Banks should reduce and simplify their fee schedules, create common metrics to allow easy comparisons between institutions, and allow customers the option of signing up for overdraft protection only for essential expenses such as rent or mortgage payments and utility bills.

“Overdraft fees are still too high and too confusing, and some of the marketing tactics being used to keep customers from opting out of these fees are truly shocking,” said report author Preeti Vissa, Greenlining’s community reinvestment senior program manager. “We hope the banks will clean up their act voluntarily, but if they don’t, the Federal Reserve Board needs to step in.”

The full report, “Debit Card Overdraft Fees: Reforms Welcomed but More Are Necessary“.