Overdraft fees continue to bleed customers

closeup of a check

Americans continue to waste entirely too much money on overdraft programs.

We won't call these overdraft "protection" programs because they don't protect consumers. The only thing they guard are bank bottom lines, as a new report from the Consumer Financial Protection Bureau shows.

We're not talking chump change here. The average overdraft and non-sufficient funds charges paid by accounts that had one or more overdrafts in 2011 was $225.

The bureau also found that most of these fees are being drawn from the same customers: 27.8% of accounts that had been hit by fees had more than 10 non-sufficient funds or overdraft transactions at those banks that tracked all incidences.

And given that these accounts are being hit over and over again for not having enough money in them, we can only assume these fees are being taken from people who can least afford them.

That's horrible.

But we can see why banks still promote overdraft. Just look at the numbers.

According to the report, overdraft and NSF-related fees from checking accounts made up 61% of consumer account service charges earned in 2011.

Sixty-one percent.

It's no wonder banks raked in $32 billion on overdraft fees in 2012, according to a study by Moebs Services.

This has to stop.

In 2010, the Federal Reserve stopped banks from automatically enrolling customers into overdraft programs; instead, customers had to opt in to participate.

Our hope was that this would stop overdraft fees entirely, but this study shows it has not. Banks glossed up the program as something that helps rather than hurts their customers.

The numbers prove otherwise.

ink pen on check

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A good checking account should be cheap and easy to use. It should free (or nearly free), have no minimum balance requirement and not make you jump through hoops to access your money.

A recent survey by the U.S Public Interest Research Group found that, while only 24% of big banks offer free checking, 60% of small banks and credit unions continue to do so.

There is no reason for a consumer to have an overdraft program on his or her account. There is no reason to pay your bank a fee for not having enough money to cover buying a cup of coffee.

Better to face the slight embarrassment of your transaction being declined than fork over $10 to $38 every time you try to spend what isn't there (which can happen multiple times in one day before you realize you're short).

The CFPB also found that those who did not opt in paid an average of $28 in overdraft or NSF fees in 2011, while those who did opt in paid an average of $196. (If you don't opt in, you can't get charged for trying to take cash from an ATM or using your debit card if you have insufficient funds, but you can get charged for bouncing a check.)

The good news is that, for new accounts opened in 2011, only 22.3% opted in to an overdraft program, and the total paid by consumers in overdraft fees is down from the 2009 all-time high of $37 million.

Thirty-two billion dollars is still too much, but at least the majority of new account holders said no to this scam.