A recent report from the CFPB found that most debit card overdraft fees are incurred on transactions of less than $24, and a majority of overdraft fees are repaid within three days.
According to the CFPB, if a consumer borrowers $24 and pays a median overdraft fee of $34, it would translate to a loan with a 17 percent annual percentage rate.
In 2010, regulators instituted new opt-in requirements that require financial institutions to obtain consent from a consumer before charging fees for allowing overdrafts on ATM and debit card transactions.
The CFPB said the study raises concerns that a small number of consumers, despite the required changes, pay large amounts for overdraft fees on advances of small amounts of money over a short period of time.
The study showed overdraft and non-sufficient funds fees account for more than half of fee income on consumer checking accounts—approximately eight percent of accounts incur the majority of overdraft fees.
“Today’s report shows that consumers who opt in to overdraft coverage put themselves at serious risk when they use their debit card,” CFPB Director Richard Cordray said. “Despite recent regulatory and industry changes, overdrafts continue to impose heavy costs on consumers who have low account balances and no cushion for error. Overdraft fees should not be ‘gotchas’ when people use their debit cards.”
According to a CFPB release, the regulator plans to conduct further studies on overdraft fees and their impact on consumers and is also considering possible regulations that could protect consumers from overdraft and related services if necessary.