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CFPB report indicates overdraft costs may be avoided

cfpbA report released by the Consumer Financial Protection Board on Tuesday showed major differences in the way financial institutions charge overdraft coverage on debit card transactions and ATM withdrawals.

A new regulation that took effect in 2010 required banks and credit unions to obtain a consumer’s consent before making purchases that would result in overdraft charges on ATM withdrawals and a majority of debit card transactions.

The study found inconsistent numbers across banks for customers who opted-in with consent. At some banks in 2011, at least 40 percent of all new customers chose to have overdraft protection while other banks had very small percentages of opt-in rates.

The report also revealed account holders who choose overdraft coverage end up with more costs and more involuntary account closures.

The CFPB said the study hints at the possibility of avoiding overdraft costs by addressing complex bank overdraft policies that are difficult for consumers to understand.

“Consumers need to be able to anticipate and avoid unnecessary fees on their checking accounts,” CFPB Director Richard Cordray said. “But we are concerned that overdraft programs at some banks may be increasing consumer costs. What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm.”

The CFPB said it plans to conduct future studies of account-level data to uncover how differences in bank overdraft procedures affect consumers.

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