In 2009, the Federal Reserve mandated that banks must inform customers regarding penalties associated with overdrafts, though the reports reveal that the disclosure statements are often difficult to follow and understand, The Washington Post reports.
Additionally, in 2010, the Fed prohibited banks from charging an overdraft fee unless the customer was enrolled in an overdraft program, and another regulatory rule established limits on the number of times a customer could be charged an overdraft fee.
Nessa Feddis, the vice president of the American Bankers Association, said that the increases are a direct result of federal legislation passed last year that reduced the amount of income a bank collects from debit card transactions, adding that customers receive several notices about overdraft policies.
Many banks offer two different overdraft services, and while customers are not required to sign up for either service, the reports reveal that banks encourage customers to enroll in those programs, The Washington Post reports.
If a customer is charged for an overdraft and that amount is not repaid by a certain time, the bank can then charge an extended overdraft fee. The reports show a 32 percent increase in extended overdraft fees since 2010.
“Bank overdraft loans are a form of payday lending,” Jean Ann Fox, the director of financial services at CFA, said, according to The Washington Post. “Banks are charging staggeringly high rates for short-term borrowing when fees are computed the same way payday loans are calculated.”