GAO Fee Study May Help Overdraft Bill

Bank fees, often hidden from consumers, are rising, according to a Government Accountability Office study, which could help legislation aimed at overhauling overdraft programs.

A bill requiring banks to give consumers a chance to “opt in” to overdraft protection, rather than being enrolled automatically, stalled in the House Financial Services Committee last year as it faced opposition from the financial services industry.

But the GAO study, released Monday, brings attention back to the issue and proves reform is necessary, said Rep. Carolyn Maloney, D-N.Y., the chairwoman of the panel’s financial institutions subcommittee, who requested the study. She is sponsoring the bill.

The study found that insufficient funds and overdraft fees tend to be costly, averaging $28 for large banks and thrifts and $22 for credit unions.

Bank and thrift noninterest income, which includes fees related to overdraft, checking, savings, and other products and services, grew to about 27% of total income last year, from roughly 24% in 2000, the study said.

It detailed an investigation in which GAO staff members posing as customers visited 185 branches of 154 institutions. The staff members could not obtain detailed checking and savings account fee information during 22% of the visits.

“The GAO report clearly indicates the need for bank fee reform,” Rep. Maloney said in an e-mail. “The fact that consumers can’t get information about fees and account terms is troubling, to say the least. This problem needs to be corrected.” Her subcommittee “will be turning its attention to this important issue after our March credit card reform hearings.”

The study also said that banks are increasingly using third-party vendors for overdraft programs, and that the vendors often encourage consumers to use the service to meet short-term borrowing needs.

Also, because overdraft fees tend to be incurred more frequently in low-balance accounts, “there is some concern that they may be more likely among consumers who traditionally have the least financial means, such as young adults and low- and moderate-income households,” the GAO said.

The Center for Responsible Lending is expected to release two overdraft studies soon — one surveying consumers’ overdraft preferences, and the other examining issues for borrowers approaching retirement.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER