Recap: CFPB Proposes Rule To Limit Overdraft Fees, Southwest Lounge Access & More

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• Maybe worth noting: Overdrafts are different than NSFs. For overdrafts, the bank is paying the item despite unavailability of funds, essentially extending the customer a loan (and charging a fee for the service). For NSFs, the item is returned to the presenter unpaid (the vast majority of banks, esp. the largest, have eliminated NSF fees).

• Banks will just not allow people to overdraft in these instances if it isn’t worth their risk and reward. As someone who works at a CU, I can tell you that the vast vast majority of people would rather have their transaction go thru and get a $23 fee rather than the embarrassment of getting declined. Ideally they would have a second card or cash, but sometimes this isn’t the cake. People who overdraft are typically high-risk and banks would rather close their accounts in many instances than dance around a bunch of regulatory stuff - and if you’re regularly overdrafting you probably shouldn’t have a bank account because it costs so much.

• Most banks will simply waive overdraft fees if you call, ask nicely and don’t do it very often.

• As someone that spent several years struggling financially, another big loophole banks use is to milk overdraft fees by not running checks through in the order they're received. Instead they'll run the biggest one through first, then the next biggest, etc. So even if the first three checks to arrive were the smaller ones and would have all been covered, a person will get hit with three instead of just one. If someone's already struggling, that's going to make things significantly worse for them. Yet it's entirely legal and banks will openly tell you they do it.

  Note, I'm not saying they should be forced to run them through smallest first, just in the order received. That not only seems fair, it's how banks used to process checks.

  • FWIW - The daily posting order for account credits and debits is laid out in the account deposit agreement. My particular bank posts deposits first, then debit card payments based on amount (smallest first) and checks are posted last, based on amount (smallest first).

    • Ya but who's got time to read the T&Cs? My day is already filled up with sleeping, working, eating, junk shooting, crack smoking, and sexy time. I ain't got time for reading no account deposit agreement!

• Why not do something about the 2-3% that merchants have to build into their prices to pay for the interchange fees on most every transaction?

  • It's cheaper than cash or checks for many businesses. Cash has risks like employees giving wrong change(accidental), employees stealing(deliberate), theft from outsiders like a robbery, insurance costs, costs to count out money and bag for deposit, costs to take the money to the bank or hire an armored car service, lost sales due to speed of service which can also by affected by the rise in self checkout/kiosks, just to name a few. Finally, checks are impractical for many things so that's out the window.

  • I'm sure you know this, but those interchange fees fund the credit card rewards that lots of people like.

• Banks will run afoul of the new CFPB rules, get sued by the gov't, then pay a fine that's less than they made by breaking the rules. That is how the system works.

  • Maybe direct the criticism productively. Like how it's targeted at larger FIs only. Weigh in via public comment process. Incremental change is how things get done in regulatory spaces.

• Regarding Priority Pass for Southwest, let's assume it is the non-restaurant version. Also, let's assume that The Club lounges all become Chase Sapphire Lounges, which restrict non-CSR-holders to one complimentary visit per year. Combine that with the sparsity of any Priority Pass lounges in the US in the first place. For example, none at LAX. And, even if there is a Priority Pass lounge in your airport, which terminal is it in? For example, SFO and ORD only in the international terminal. Someone at Southwest is out of touch.

  • No mention of the plethora of Priority Pass options at Southwest hubs and focus cities? Dallas-Love, Houston-Hobby Chicago-Midway (although one is supposed to open later this year), Baltimore (lounge is so small), Nashville (only a counter-service spicy chicken restaurant), Atlanta (lounge is way out in Terminal F).

    Denver has a couple of restaurants, but I haven't tried them yet. Orlando is the only major Southwest airport in the east half of the country with a decent Priority Pass lounge that is convenient to Southwest customers.

    Sorry, I don't know about airports west of Denver.

    • Which Priority Pass lounge does DAL have? AFAIK I know there's only a non-public USO lounge

• Here's a great idea for avoiding overdraft fees of any amount: don't write checks for more than your available balance.

  • I get encouraging someone from overdrafting their acct. The problem is what the bank does after 1 overdraft occurs. If you know that the person doesn't have the funds in their acct, why keep letting them charge their acct and incur more fees for every single transaction?

    Going to call out Comerica who did something like this to me when I had no funds when a maintenance fee was due. They charged me the initial fee and then every few days for about a week. Why? "You don't have money in your acct. Let me charge you a fee. Oh, you still don't have money to cover the orig fee and the other fee that I charged you? Let me charge you again."

    Going to take it one step further and say that banks shouldn't be able to write off predatory charges either. If I were to sue someone, I'd have to show that I mitigated my damages. Same thing here. Banks shouldn't be able to let consumers continue to get hit w these charges in hopes that they (the banks) can profit off of them IF they pay up, but then write it off at tax time if they don't pay it.

    • In the bank accounts I have, overdraft is optional; if it's disabled, a charge should be rejected. Maybe enabling overdraft isn't a smart choice for some people, but I don't think a bank offering that choice should be illegal. If some people eat too much candy and get sick, should candy be illegal?

      • Back when I was struggling and had a checking account at Regions Bank checks coming in that couldn't be covered generated a non-sufficient funds fee instead of an overdraft fee This fee was not optional.. If the bank that was processing the check ran it again before you could get the bank balance fixed, it would generate a second one. You could also get hit with both an NSF & an overdraft fee for a debit transaction as well, if it had been cleared when the test hold was done, they'd treat it as something that had to be paid, even though the money wasn't there.

        What you're thinking of is overdraft protection, where for a small fee (my credit union charges $1) they'll cover the check by taking the money out of your savings or other account you specify. That's often unavailable to low income people, as they have no savings. I've never seen a bank that doesn't charge overdraft and/or NSF fees for checks, electronic transfers and even some debits that come in without money to cover them.

        Banks have designed the system to make it more likely that struggling people will be hit with fees. The equivalent candy-related metaphor would be a dentist deliberately giving out buckets of candy to poor patients to cause them to get more cavities and need more fillings.

        • Bank of America's overdraft FAQ says "Another option is to ask us to apply the Decline All overdraft setting to your account. With this setting we'll decline or return transactions if you don't have enough money in your account at the time of the transaction. We will not charge you a fee when we return a an item unpaid."

          I don't know if all banks have a similar option. (But still, writing a check or using a debit card is optional.)

    • Banks are not getting a tax benefit. They would accrue the fee into taxable income when it's charged. If they ultimately waive or "write-off" some or all of the fee, they will deduct or reverse that amount. So it's a wash, no tax benefit as you suggest.

      • Not if they send you a 1099 for Debt forgiveness.

        • That's not how it works. Too tired to explain further.

  • That’s like saying “avoid overdraft fees by being rich”.

    There were points in my life where I couldn’t afford to pay all my basic bills and overdrafted my account. Overdraft fees are specifically designed to prey on people who don’t get paid enough in the first place and kick them while they’re down. They’re one of the most disgusting ways banks make money. I would argue even worse than charging monthly fees on checking accounts. Comments like this remind me of how out-of-touch most of you on the forum are.

    • With all due respect: There were points in my life as well that I had very little income, but I lived within my means and did everything I possibly could to minimize expenses, e.g., roommates, cut-rate groceries, crappy car, no travel, no eating out. It totally sucked, but I never ever wrote a bad check.

      • I appreciate that, but have some grace and recognize that others can still struggle if you succeeded through something.

        Be it mistakes, trying to buy food/gas because your pay is a couple days out, unexpected ACH debit, whatever. It's also a lot easier to trip up with a card as well.

        Remember that most humans are not constantly thinking rationally. Especially if you have constant stressors in your life. Overdraft fees are mostly borne on those with low income.

        Feel good about what you accomplish in life, but no need to be zero-sum in mindset.

        • How about a rule that says if you make below $X, you get free overdrafts? That would be pretty cool ...

      • I've never written a bad check, either. That's not the only way to get an overdraft fee. I can understand 1 overdraft fee, but what kills a lot of ppl is that the bank charges a fee for everything that comes in after that. You could overdraft your acct by $1 and get hit w a $20 fee, and everything that you had scheduled will cause another fee once it comes through.

• Go CFPB Go. To think a major political party is trying to gut it via the supreme court. I'm sure most of us have personally been saved hundreds of dollars by this agency.

  • And the other party is only trying this for the optics in an election year.

  • Wow. Hundreds of dollars saved while the government wastes billions of dollars of your taxes on foreign aid and handouts to illegals. So worth it.

  • Yeah, how dare that party use constitutional processes to gut an unconstitutional, unaccountable bureaucracy. It's an attack on democracy! or something like that.

    • Bet you five dollars you can't explain to me in a way that's vaguely consistent with existing jurisprudence why the entire federal administrative state is unconstitutional.

      • I'm guessing @guest_1784649 was being sarcastic, or something like that.

  • Maybe ever year should be election year so things actually get done

  • One word: tradeoffs

    Be careful what you wish for. Banks will find a way to make up for that revenue elsewhere. That being said, $3.5 billion dollar divided by the number of Americans with bank accounts is $10-20 annually per person.

    • Consider the allocation of trade-offs. They are not equitable. Those of us who are well off don't get nickel and dimed on fees and we can easily get it waived. Even if there is a fee, it's much more easily absorb with minimal or no cascading negative effects.

      • Agreed that tradeoffs are not perfectly equitable.

        But regulations like these slightly reduce the long run return from this hobby. The average reader of this blog won't benefit from this regulation since they already do their best to avoid fees and maximize benefits from banks. And banks may make up for reduction in fees in areas where consumers have less control (e.g., reduced sign up bonuses).

    • wtf does that have to do with the issue?

    • No illusions that they won't try. Pushing back via regulator oversight has to be just as vigilant as the banks pushing for profit.