WASHINGTON–Only six of the nation’s 50 largest banks restrict overdrafts with consumer-friendly policies, while the remaining 44 engage in one or more practices likely to hit their customers with overdraft fees, according to new research by the Pew Charitable Trusts.
According to Pew, the six institutions that follow consumer-friendly policies when it comes to overdraft fees are Ally Bank, Charles Schwab Bank, Discover Bank, HSBC, USAA and Citibank. Pew said the six banks all deny ATM and point-of-sale transactions that would result in overdrafts and don’t engage in so-called “high-to-low” transaction reordering, which tends to boost the number of overdraft fees a consumer might trigger in any given day.
In addition, the six banks also cap overdraft fees at a set number per day or month, waive fees on small-dollar missteps and don’t charge for extended overdrafts.
So what do the other 44 banks do that Pew said is not beneficial to customers:
- 41% “reorder” consumer transactions by deducting the largest debits first.
- 52% charge “extended overdraft fees.” These are a second fee, typically $20, to penalize consumers for failing to bring their balances above zero within five days of the original overdraft.
- 80% allow real-time insufficient funds transactions – such as point-of-sale purchases and automated teller withdrawals.
A separate Pew Trust study found that 68% of small banks don’t reorder transactions under any circumstances.
“Overdraft products ... should not be allowed to continue functioning as extremely expensive credit, particularly for the financially vulnerable consumers who use them repeatedly,” Pew said in its analysis. It also urged regulators to limit the size, frequency and overall cost of overdrafts and promote affordable small-dollar loans.
The full Pew report can be found here.