From USA Today:

Bair said that any major restriction to bank policies “needs to be done very carefully, given the state of the industry.”

She supports regulation to require banks to get consumers’ permission to approve transactions that overdraw their accounts and charge a fee. She also believes overdraft coverage should be treated as a loan, which would require banks to calculate and disclose the average APR to consumers. In the past, banking regulators have said that overdraft coverage is a credit product, but have stopped short of regulating it as a loan.

Nationally, the average American household with a bank or credit union checking account pays $368.51 each year in overdraft protection (ODP) or non-sufficient funds (NSF) fees.

In states where payday loans are available, the average consumer pays $240.79 per year in ODP and NSF fees–$127.72 less than the national average. On the other hand, in states where payday loans have been eliminated, checking account holders pay, on average, $541.65 each year—that’s $300.86 more than their counterparts who live in states with payday loans.

A customer typically pays $15-$17 per $100 for a payday advance. Comparatively, the average ODP/NSF fee is $27, regardless of the amount of the overdraft. Many informed consumers choose to take out a payday loan rather than overdraw their checking account. This explains why, in states where payday loans are an option, consumers pay less.

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This Associated Press story is getting a lot of pickup: 

Customers making a $20 overdraft on their debit cards can incur an annual percentage rate of 3,520 percent if they repay it in two weeks, assuming a $27 fee, according to the FDIC. That towers over rates found for payday loans, credit cards and other forms of short-term borrowing.

Finally, journalists are starting to get it.

Overdraft Protection and Payday Advance Loans

Short-term credit providers play a critical role in the U.S. financial services market by extending capital to a population in need of small-dollar loans. The demand to meet the need for immediate, unsecured, short-term credit has grown in the past decade with the market now exceeding $115 billion, including bounced check fees, late bill payment fees and payday loans. Bank overdraft protection and salary or payday advances are among a number of options available to consumers facing unexpected and unbudgeted expenses.

Confronting a budget shortfall, a consumer may overdraw their checking account, triggering a “bounced loan” through overdraft protection or choose an advance through a payday lender.While both options provide consumers with short-term access to funds, there are important differences between the two.

See a detailed comparison of the two products.

Among their priorities listed in the Cleveland Plain Dealer column:

• Credit card late and over-the-limit fees

Over-limit fees and late fees can cost more than $35 — and if you try to pay online to avoid being late, some companies charge you $10 to $15 to make an online payment if you want it posted that day.

• Overdraft protection programs

Expect high debit card fees to come under fire, with consumer groups pressing to bring transaction fees into line with the bank’s actual costs.

Big battles are likely on overdraft fees, those $35-plus-per-day fees that can accrue when your bank allows you to overdraw your account when you use an ATM.

“It isn’t really protection; it’s a protection racket,” says Ed Mierzwinski of PIRG. “We want to say it’s a loan, not a fee, and it should be subject to the Truth in Lending Law.”

That designation would mean consumers would have to apply for overdraft protection, rather than automatically (and often unknowingly) getting it, and that banks would have to clearly reveal the terms.

CNN reports: Automatic overdraft loans can look like a consumer’s best friend, but they can come at a steep cost.

Our friends at the Consumer Federation of America had this to say: “Banks should have to get their customers’ affirmative consent before signing them up for their most expensive loans.”  And the Center for Responsible Lending added, “most debit overdrafts are small, averaging less than the overdraft fee.”

Payday Pundit wonders why consumer groups only ask for “customers’ affirmative consent” when it comes to overdraft protection–but want to ban payday loans. Don’t they realize payday loans are fully transparent and require much more than a “customers’ affirmative consent.”  Why the double standard?

Washington Post columnist Nancy Trejos is skeptical.   From her column today which discusses the recent Federal Reserve proposal to crack down on “deceptive” practices:

“The OTS {Office of Thrift Supervision} and Fed proposal show that these agencies recognize that abusive overdraft loans are a significant problem,” said Eric Halperin, DC director of the Center for Responsible Lending. “However, they would continue to allow banks to enroll customers, who never signed up for it, into the most expensive credit program the bank offers.”

They also urged the agencies to consider banning overdraft fees caused by check holds resulting from a bank’s policy to delay the availability of deposited funds. “These rules should also recognize that it is an unfair practice for a bank to charge an overdraft fee or a bounced check fee for a problem caused by the bank’s decision to place a hold on the consumer’s check deposit,” said Gail Hillebrand, financial services campaign manager of Consumers Union.

The Payday Pundit has been making the point over and over again the payday lending customers are frequently trying to avoid bounced check fees and overdraft protection costs. 

The Feds are serious.  Apparently, big announcements will be made today regarding new rules for credit card companies to end deceptive practices.  The Washington Post is playing it big, making it the top story of the day.  From the piece:

The proposed regulations, which could be finalized by year’s end, would label as “unfair or deceptive” practices that consumers have long complained about. That includes charging interest on debt that has been repaid and assessing late fees when consumers are not given a reasonable amount of time to make a payment. When different interest rates apply to different balances on one card, companies would be prohibited from applying a payment first to the balance with the lowest rate.

“It’s stronger than what has been issued in the past,” said William Ruberry, a spokesman for the Office of Thrift Supervision, which has joined the Fed and the National Credit Union Administration in backing the proposals. “What they proposed is a significant set of rules governing credit card practices and overdraft protection.”

 

The federal regulators that oversee the savings and loan industry are proposing new regs to prevent ”deceptive acts or practices regarding credit cards and overdraft protection.”  The Payday Pundit says it’s about time.      Key paragraph from the announcement:

Today’s proposal addresses practices that have raised concern about fairness and transparency. For credit cards, the proposed rule would address: (1) unfair time periods for making payments; (2) unfair payment allocations; (3) unfair interest rate increases on outstanding balances; (4) unfair fees from credit holds; (5) unfair methods of computing balances; (6) unfair security deposits and fees charged to an account for the issuance of credit; and (7) deceptive offers of credit. For overdraft protection services on deposit accounts, the proposed rule would address: (1) a consumer’s ability to opt out of overdraft services; and (2) unfair fees for debit holds.

…compared to bounced check fees and overdraft protection.  The payday lending industry has been making this point for years, but now economists are catching up.  This article on the blog of the Left-wing magazine Mother Jones discusses research by East Carolina University Professor Marc Anthony Fusaro.   

From the article:

     Fusaro looked at overdraft protection as a form of a short-term loan and found that people who occasionally bounce checks (between 1 and 10 times a year) pay interest rates exceeding 6,000 percent. Chronic bouncers in the study, who make up a small percentage of bank customers, paid more than $3,000 in fees annually for the privilege. The average size of the overdraft was pretty small, between $90 and $300. The most extreme case in the study was one poor soul who had a $3 overdraft outstanding for one day, which resulted in an intereste rate of 260,245 percent, a hefty surcharge for using a debt card for a latte.