Bank customers who use account overdrafts to tide themselves over are paying out the nose to do so, according to a new report from the Consumer Financial Protection Bureau.
"Consumers often are paying $34 to have the bank spot them $24 or less for no more than a few days," bureau Director Richard Cordray told reporters Thursday.
It's a "very expensive way to cover a small cash shortfall," Cordray said.
The agency's report, based on data from millions of bank accounts, suggests that a small minority of bank customers account for the vast majority of bank overdraft fees, and that those people tend to have poor credit. Customers who choose to pay overdraft fees on debit card transactions and ATM withdrawals pay almost $450 more annually than those who don't, an indication of how they might intentionally be using overdrafts.
Some people may intentionally overdraft their accounts, choosing to pay the steep fees involved to pay a bill or cover some emergency. Overdrafts are one alternative to payday loans or other forms of emergency borrowing. The agency has a written a rule that would overhaul the payday lending industry, although it has not moved to finalize that rule. Payday lenders, who have warned that the rule could eliminate much of their industry, have said that their businesses are an alternative to overdrafts or intentionally bounced checks.
The agency is weighing new rules on bank overdraft fees, which it said amount to $15 billion annually.
Industry groups reacted to the CFPB's new study by arguing that financial consumers appear to be fully aware of the risks and benefits of overdrafting.
"With nearly half of Americans unable to meet a $400 emergency expense, overdraft is a voluntary service which provides consumers access to needed short-term liquidity," said Consumer Bankers Association head Richard Hunt, noting research finding that virtually all customers are not confused when they opt in to overdraft services.
There is no timeline on a rulemaking from the CFPB, but the agency is testing different one-page disclosures for customers indicating what their costs might be for overdrafts.
"We are not aware of current forms being problematic and believe consumers make informed decisions," said National Association of Federally-Insured Credit Unions executive vice president of government affairs Carrie Hunt.
Right now, the agency is under pressure from the Republican-led Congress, which is in the midst of an effort to undo the agency's latest regulation, one that would open up class-action lawsuits in consumer finance.
This article has been updated to provide industry reaction.
Republicans also are aiming to overhaul the CFPB and limit its authority. Some House Republicans have called on President Trump to fire Cordray or for him to resign, citing reports that he may run for Ohio governor.