A recent study of overdraft programs at banks and credit unions conducted by the Federal Deposit Insurance Corporation (FDIC) found that overdraft fees can cost consumers a significant amount of money.

This is not news to bank and credit union members or consumer advocates. Various studies independently conducted by consumer groups suggest that fees assessed by bank and credit union overdraft programs essentially amount to short-term loans that end up costing consumers billions of dollars in overdraft fees.

Furthermore, these reports suggest that the bank and credit union overdraft programs often do not allow consumers to make informed decisions regarding these fees.

Now that the federal banking regulator has conducted its own study on bank and credit union overdraft fees that reflects the previous concerns of consumer groups, perhaps action may be taken to protect consumers bank accounts.

What Are Overdraft Fees and Why are They a Problem?

Overdraft fees (also known as courtesy fees) are a charge assessed to a consumer’s banking or credit union account when they make a purchase and there are insufficient funds in their account.

For example, if a bank or credit union member overdraws their account by $20, the financial institution may cover the purchase by transferring funds from a linked account.

If the institution charges the median overdraft fee of $27, this consumer would incur an annual percentage rate of 3520%, assuming the individual repaid what would be considered a short-term loan in two weeks time.

Another problem associated with overdraft fees and overdraft programs is the fact that many consumers are not aware that they will be charged the fee or even that their bank or credit union account is part of an overdraft program.

Very often, a consumer is not informed an overdraft fee was assessed until after a sales transaction or ATM withdrawal is made, leaving consumers to make uninformed decisions regarding their finances.

Big Money for Banks and Credit Unions

According to a 2007 study conducted by the Center for Responsible Lending, consumers are reportedly paying $17.5 billion per year on banks’ automatic overdraft loans.

While similar statistics were not readily available for credit union overdraft programs, it is possible that credit unions are receiving a similarly staggering amount. Many credit unions are now charging similar median overdraft fees.

It is possible that one of the largest revenue sources for these wealthy credit unions are overdraft fee programs that allow the institutions to profit at the cost of their consumers.

Some consumers are especially troubled by this idea, as credit unions are supposed to be non-profit organizations that have previously marketed themselves as less expensive and more personable alternatives to banks.

Attorneys are currently seeking credit union members who were assessed overdraft fees, as they may be able to take part in a credit union overdraft fee class action lawsuit investigation.

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