Report: Big Banks Mislead Customers About Overdraft Protection

Photo (cc) by B Rosen

The costs and risks of overdraft protection are not well understood by many Americans. So it’s no surprise that a new study using mystery shoppers found that big banks’ explanations of overdraft protection programs are inconsistent and unclear.

That was one major finding in a report by the California Reinvestment Coalition, Woodstock Institute, Reinvestment Partners and New Economy Project. The four organizations are calling upon the Consumer Financial Protection Bureau and federal banking regulators to toughen up consumer protections.

A little background: Banks used to automatically enroll customers in so-called overdraft protection, which enabled the bank to cover the overdraft and then charge the customer a fee. In 2009, a new federal rule said customers would have to choose or opt in to this overdraft program if they wanted it. It’s clear that many people are still confused.

According to a press release about the report:

“The numerous conflicting and confusing messages given to the secret shoppers in more than 60 visits to bank branches should be great cause for concern for banks and for their regulators. These visits show that the $35 cup of coffee ($5 for coffee, $30 for overdraft fee) is alive and well. Overdraft opt-in rules are clearly not enough to protect consumers from this expensive product,” said Paulina Gonzalez, executive director of the California Reinvestment Coalition.

In the study, 64 mystery shopper visits were made to 39 big-bank branches in New York City, Oakland, Calif., Chicago and Durham, N.C. Four of the biggest banks in each city were selected. For each bank, the shoppers visited two branches in predominantly white neighborhoods and two branches in communities of color, the release said.

Some of the other findings:

  • Inconsistency. The banks’ explanations of overdraft programs were “highly inconsistent, and often unclear and incorrect,” suggesting that consumers would be unable to make informed decisions about them, the release said.
  • Triggers. In many cases, bank employees did not adequately explain how overdraft fees are triggered.
  • Opt in. Instead of explaining that the overdraft program for ATM and debit cards has an opt-in requirement, as dictated by federal regulations, bank employees often led consumers to believe the feature was automatic.
  • White vs. non-white. “In two of the cities, bank branches visited in predominantly non-white neighborhoods had limited staff availability and long wait times, in stark contrast to well-staffed branches in predominantly white neighborhoods,” the release said.

The press release said:

“Overdraft on ATM withdrawals and debit purchases is a debt trap that pushes lower-income people out of the banking system. Regulators should ban this product,” said Josh Zinner, co-director of New Economy Project.

Banks generated $31.9 billion in revenue from overdrafts in 2013. “Banks derive the vast majority of overdraft revenue from a relatively small percentage of struggling customers who repeatedly overdraft, and who are disproportionately lower income or people of color,” the report said.

Are you aware of your bank’s overdraft policies? Are you signed up for overdraft protection? Share your comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
30 Purchases That Will Start Saving You Money Immediately
30 Purchases That Will Start Saving You Money Immediately

Sometimes, you’ve got to spend to save. These canny deals are a good bet for savings.

7 Secret Perks of Individual Retirement Accounts
7 Secret Perks of Individual Retirement Accounts

IRAs come with bells and whistles that many other accounts lack — including some perks you may not know exist.

Small Splurges That Make It Feel Like You’re Living Large
Small Splurges That Make It Feel Like You’re Living Large

Cutting costs is the shortest path to financial freedom. However, there are times when a little spending can produce big returns.

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Does it feel like your paycheck is gone the moment you get it? You can break that vicious cycle.

8 Products to Reduce Anxiety and Stress
8 Products to Reduce Anxiety and Stress

Current events have you feeling anxious? These Amazon products can take the edge off.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

Seniors With COVID-19 May Display This Unusual Symptom
Seniors With COVID-19 May Display This Unusual Symptom

Largely asymptomatic seniors may experience a symptom not commonly associated with the coronavirus.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

18 Early Black Friday Deals on Amazon Today
18 Early Black Friday Deals on Amazon Today

These items are all steeply discounted — but the deals won’t last long.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?
Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

13 Amazon Purchases That We Are Loving Right Now
13 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

8 Surprising Household Items You Can Sell for Fast Cash
8 Surprising Household Items You Can Sell for Fast Cash

Sometimes, the humblest household items are worth the most money.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

5 Ways Social Security Will Change in 2021
5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

11 ‘Disposable’ Items You Should Be Reusing
8 Things You Should Buy at Restaurant Supply Stores
8 Things You Should Buy at Restaurant Supply Stores

You don’t have to be a chef or a restaurant owner to shop here.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.