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U.S. Bank’s Overdraft Fee Hike: Unfair, But Not Deceptive

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Word came out last week that U.S. Bank is raising the overdraft fees on checking accounts. The announcement is surprising as it follows so soon after hefty penalties were assessed against many other banks for their overdraft programs.

JPMorgan Chase was penalized $110 million, Citizens Bank $137 million, TD Bank $62 million, Whitney Bank $6 million, and Bancorp South $1.75 million.

One might think that these fines would discourage a bank from making its overdraft program more punishing to depositors – at least right now. 

Interestingly, U.S. Bank made no mention of whether it is also reconsidering how it clears checks and other debits. This is of particular interest as courts have recognized that the practice of clearing items from highest value to lowest is designed to maximize the number and amount of fees that can be charged to a customer's account. The process magnifies the abusive nature of their overdraft programs. Inasmuch as most depositors have little way of knowing their banks' clearing processes, "high-to-low" clearing also adds a degree of deception to overdraft programs. 

Although U.S. Bank's announcement is likely to draw the attention of the Consumer Financial Protection Bureau, the watchdog for unfair, deceptive and abusive acts and practices, the bank can certainly show that it is not being deceptive. 

While being upfront about making fees more unfair and abusive is an improvement, it's hard to applaud the effort.

Jim Wells is president of Wellspring Consulting International, which focuses on expanding access to financial services for consumers who do not use traditional depository institutions.

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