While banks can no longer automatically sign up customers for expensive overdraft protection, consumers are still vulnerable to unfair overdraft practices, according to Consumers Union, the nonprofit advocacy arm of Consumer Reports.

“Consumers still need protection from bank practices designed to boost overdraft fees,” said Pamela Banks, senior policy counsel for Consumers Union who attended today’s announcement. “Banks should be prohibited from deceptive marketing practices that dupe customers into enrolling in these programs and shouldn’t be allowed to re-order how transactions are processed to boost overdraft fees. The ‘penalty fee box’ is a simple tool that will make it clear to consumers how much of their money is going towards these fees and how to avoid them in the future.”

The CFPB inquiry launched today will focus on common overdraft practices, including transaction re-ordering that adds to consumer costs, missing or confusing information, misleading marketing materials, and the disproportionate impact on low-income and young consumers.

Since August 2010, banks have been required to get their customers consent before signing them up for automatic overdraft protection for ATM and debit charges. If a consumer “opts in” to overdraft loan programs, the bank is able to assess a high fee each time an ATM or debit transaction overdraws the account. If the customer does not “opt in,” then the bank must simply deny ATM or debit charges when there is not enough money in the account to cover the transaction.

Consumers Union noted that there are cheaper alternatives for consumers when it comes to covering overdrafts triggered by debit cards or checks. Most banks allow customers to link checking accounts to a savings account, credit card, or a line of credit. When an overdraft occurs, the bank will automatically transfer money to cover the transaction from the linked account. The FDIC has concluded that the fees assessed for these other types of programs are significantly lower than for automatic overdraft loan programs.

“Consumers should not sign up for high cost overdraft protection at their bank,” said Lauren Bowne, staff attorney for Consumers Union. “Banks should be required to inform customers of all of their options for avoiding overdrafts so consumers can make the best choice for them.”

For our February Bank Alert we’d like to highlight a new bank policy many of you may have encountered. The big banks have been imposing a back-door fee by raising the minimum balance required to qualify for a fee waiver on checking accounts. If you don’t keep a large buffer of cash in your checking account, you’ll have to fork over an extra $10 or more a month for account maintenance fees.

Bank of America, as it did with its failed $5 debit card fee, was one of the first to introduce increased minimum balances. In addition to hiking the monthly maintenance fee on the My Access Checking account from $8.95 to $12 a month, in May 2011, Bank of America imposed a $1,500 minimum balance requirement. Other banks soon followed. In June, Wells Fargo’s Value Checking minimum balance increased fifty percent, from $1,000 to $1,500, and raised the monthly maintenance fee one hundred fifty percent from $2 to $5. This fall, Citigroup quadrupled the minimum balance required to waive the fees on its mid-level checking account, going from $1,500 to $6,000 and doubled the monthly maintenance fee from $7.50 to $15! Consumers are not happy.

“Citibank starting December will charge me $10 a month just for having a checking account the same account I have had for 8 years just because now I don’t have a direct deposit in my checking account. I think that is not a nice way to treat an old customer after so many years start charging me $10 a month for having my money in that bank. If I keep the minimum balance they want me to I’ll not be charge the $10 dollars but I’m not sure I will have every month that balance since I don’t have a job now. It is very sad that only if you have a lot of money you don’t have to pay for having a checking account. This is a land were only rich people have all the benefits, I think that is not fair.”

Carmen from Delray Beach, Florida

While most of the big banks allow consumers to avoid the fees if they receive a qualified direct deposit, or if the customer has other business, such as a mortgage, with the bank, many will end up paying more for something that they used to get for free. The higher minimum balance requirements may end up pricing some out of the banking system.  While the median transaction account balance for all American families is about $4000, those in the lowest income bracket’s maintain less than $700. These folks, who usually live paycheck-to-paycheck, stand little chance of being able to maintain a balance twice what they have now to qualify for the fee waiver.

 ”We have banked with SunTrust since 1976. The same account, have not changed. We had a SunTrust at Work Checking account, with direct deposit, that did not require any minimum balance and we did not pay any bank fees for monthly maintenance. As of November 2011, SunTrust has changed this so that is no longer available. Now we have several choices to not pay the $17 monthly maintenance with the additional fee of the $5 per month of use of our debit card…but they are horrible choices. Choice 1: $3,000 minimum daily collected balance and direct deposit, but only from an employer work place. Choice 2: $5,000 minimum daily collected balance without direct deposit or $10,000 total linked deposits! This is outrageous. My husband is semi-retired and in 2012 when he will begin to collect Social Security, the SS direct deposit does not qualify as “direct deposit” as it is not from an employer work place. So to avoid paying the fees we will have to keep $5,000 or $10,000 in SunTrust!!!”

Carolyn from Green Bay, Wisconsin

In defense of these changes, banks say they just have to keep up with the cost of doing business.  Banks blame the spate of fees and minimums on new federal regulations, such as the cap on interchange fees, for cutting into their profits. Jamie Dimon, head of Chase, said that these costs have to be “repriced into the business” – that is, customers have to pay so that banks can be as profitable as they can be.

Consumers have had enough! One study, by cg42 a boutique research firm, estimates that in 2012, the ten largest U.S. banks may lose upwards of $185 billion in deposits as consumers move their money out of these institutions.

“I just went back to work (at a substantially lower wage) after being laid off & out of work for 2 years. I am just getting back on my feet financially and cannot afford the extra fees and charges that my bank will be starting shortly. Of course, they said if I maintain a high minimum balance they will waive the fees – I live paycheck to paycheck I cannot afford a high minimum balance.  I will be changing accounts because of all these new fees and charges – I have been with my bank 14 years.”

Laurie from San Jose, California

“Suntrust recently notified us that they now will have a minimum balance of $500 on our checking account and $5/month fee on our debit card. This is on a checking account that was promised to be without fees forever. I am in the process of closing that account and banking elsewhere.”

William from Randleman, North Carolina

Have you considered moving your money? Did you drop your big bank because you were sick of being nickel and dimed? Let us know your story by emailing money@consumer.org.

As mobile phones have become more ubiquitous, the marketplace has produced many ways to pay using these devices, including charges directly to mobile phone accounts. As these technologies and practices have developed, however, US laws have failed to catch up. This article recommends a few simple steps to harmonize existing laws and to ensure that all consumers making mobile payments have guaranteed consumer protections.
For more, click here.
 
This article was originally published in the Banking & Finance Law Review, 27 BFLR 213-343 (2012).

“There is a long history of debt collectors taking advantage of the elderly, students, military personnel and others – some of our most vulnerable populations. Greater oversight would help protect consumers and shine a light on these predatory practices,” said Pamela Banks, senior policy counsel for Consumers Union, the policy and advocacy division of Consumer Reports. “For the first time, there would be protections for people who have been targeted and ripped off by these shady firms for years.”

Consumers Union has been working to educate consumers about credit bureaus and the need to review your credit report for errors.

“We hear a lot of complaints from consumers about credit bureaus dragging their feet to correct credit report mistakes. Consumers need and deserve a better system for fixing errors that can cost them in the long run. With this oversight, the CFPB can effectively bring credit bureaus and debt collectors in line,” said Banks.

Under PSLF, student loan borrowers who work full-time at public service or non-profit organizations and make 120 on-time payments toward their federal student loans can get their remaining balances forgiven. 

To visit the PSLF website, go to: http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp

The CFPB’s new remittance rule provides strong federal protections, including the following:

Better Disclosures: With this rule, remittance transfer providers must generally disclose the exchange rate, any fees related to the remittance, the amount of money that will be delivered abroad, and the date the money will be available.

Option to Cancel: Typically, consumers will have at least 30 minutes after payment to cancel a remittance.

Correction of Errors: With this rule, money transfer providers will generally be held accountable for errors. If a remittance sender reports a problem with a transfer within 180 days, the provider must generally investigate and correct any errors.

To read Cordray’s full blogpost, click here.

To learn more about our work to promote financial reform and a strong CFPB, click here.

The U.S. Department of Justice and Attorneys General from 49 states announced a$25 billion settlement today with five major banks in the country to settle allegations of fraudulent robo-signing of mortgage documents and other abusive practices that contributed to a record number of foreclosures in recent years. According to news reports, some additional banks are considering the deal so the value of the settlement could grow if they decide to sign on.

But is this settlement enough?  Read our press release

The settlement represents an important step in the effort to help homeowners harmed by the foreclosure crisis and will require the participating banks to implement reforms to prevent certain foreclosure abuses in the future. But more is needed to hold financial institutions accountable for their role in precipitating the nation’s economic crisis, according to Consumers Union, the nonprofit advocacy arm of Consumer Reports.

“Millions of American families have lost their homes or seen the value of their homes disappear because of fraudulent foreclosure practices,” said Pamela Banks, senior policy counsel for Consumers Union. “This settlement represents an important down payment toward assisting struggling homeowners and holding banks accountable for foreclosure abuses. But clearly much more work needs to be done to ensure banks are held liable for their misdeeds and homeowners hurt by unfair mortgages practices get the help they need.”

Under the proposed settlement, $25 billion will go to nearly 2 million homeowners harmed by the mortgage mess. An estimated one million homeowners are expected to be eligible for a reduction of the principal on their mortgage or refinancing to lower their rates. The settlement also provides $2,000 to approximately 750,000 homeowners who lost their homes to foreclosure from September 2008 through 2011. The settlement also requires the banks to implement reforms to stop abuses related to how they service mortgages and handle foreclosures.

The banks participating in the settlement are Ally Financial, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo. The settlement covers privately held mortgages but not mortgages owned by Fannie Mae and Freddie Mac. A national monitor will oversee the settlement to ensure that banks comply with its terms.

The states agreed not to pursue certain civil charges against the banks for the types of abuses covered by the settlement but state and federal prosecutors can still pursue criminal charges. In addition, banks can still be prosecuted for their role in the nation’s financial crash. President Obama recently named New York Attorney General Eric Schneiderman to investigate how risky mortgage backed securities contributed to the collapse of the economy.

“Americans are still waiting for financial institutions to be held accountable for their role in causing the biggest financial downturn since the Great Depression,” said Banks. “Now, more than ever, we need a vigorous investigation so that the culpable are held accountable and there is meaningful relief for homeowners.”

More information on the settlement can be found at:
http://www.nationalmortgagesettlement.com/

Contact: Michael McCauley, 415-902-9537 (cell) or David Butler, or Kara Kelber, 202-462-6262

The National Association of Consumer Bankruptcy Attorneys just released a survey and a report showing that bankruptcy lawyers are seeing a spike in potential clients who have student loan debts.  The problem is, student loans typically can’t be discharged in bankruptcy like other debts – making them an especially heavy burden in stressful economic times. 
 
The lawyers surveyed by NACBA had this to say about student loans and bankruptcy:

• More than four out of five bankruptcy attorneys (82 percent) see the limited availability of student loan discharge in bankruptcy as “a big problem” barring a fresh start for clients.
• Seven out of 10 bankruptcy attorneys see   the lack of ability to separately classify student loans debts for debtors using chapter 13 as a “big problem.”
•  Nearly two out of three bankruptcy attorneys (65 percent) say that student loan provider debt collections have become “much more” or “somewhat more” aggressive in the last 18 months.
• More than three out of five bankruptcy attorneys (61 percent) dealing with potential student loan debtor clients have seen cases of debts more than 15 years old still being pursued.

The NACBA report also includes troublesome data about current borrowers’ debt loads: 

• College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year.   Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.
• Students are not alone in borrowing at record rates, so too are their parents.  Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year.  Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year loan repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-1993.
• Of the Class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted.  The Chronicle of Education puts the default rate on government loans at 20 percent.

Students and their families need to take a close look at all their options for financing a college education.  For our tips on how to graduate with less student debt, click here.

But that’s not the half of it – now the federal government is intensifying its focus on the most infamous players in the industry – the debt buyers.

These are the folks who buy portfolios of consumer debts from original creditors for pennies on the dollar and then try to collect on them, often by filing cookie-cutter lawsuits in bulk.  It’s been a booming business in recent years for the debt buyers, but an increasing burden on consumers and the courts. 

Enter the Federal Trade Commission, which just announced that it has reached a $2.5 million settlement with Asset Acceptance, one of the biggest debt buyer firms in the country.  The FTC alleges that Asset Acceptance has been suing consumers on debts that are too old to be pursued in court – often called “time-barred” debts - and that the firm has engaged in debt collection efforts even though the information they have about the debts is often unreliable, outdated or just plain wrong.  These practices, according to the FTC, are “deceptive” and therefore illegal.

This FTC action may be just the tip of the iceberg.  Since the FTC doesn’t tell states how to run their courts, it has asked states to pass their own laws tightening up the requirements for filing debt collection lawsuits.  In fact, the California Senate passed a bill just yesterday that aims to rein in the same practices that the FTC has targeted in the settlement.

For more information on consumer rights and ”time-barred” debts, check out the FTC’s informational website.

For more information on debt collection issues, visit our website.