By Dan Kadlec
What’s more effective: consumer protections or consumer education that leads to sound individual decision-making?
There is a place for both. But those who question whether financial education works would do well to consider the Consumer Financial Protection Bureau’s new report on bank overdraft fees, which in my opinion demonstrates that when individuals understand their choices, they will protect their pocketbook all on their own, thank you very much.
Unfortunately, as the report also shows, individuals too often do not understand the choices. That is the watchdog bureau’s central finding and helps make the case for greater regulation. The report concludes that “each institution’s overdraft policies, procedures, and practices are highly complex and can be difficult for a consumer to navigate.”
Among the overdaft complexities:
- Complicated fee structures Bank polices vary widely. Some cap daily overdraft charges to two a day while others allow you to pile up insufficient funds fees 12 times a day.
- Coverage limits Some banks have fixed limits on how much they will lend on a check or debit with insufficient funds; others vary the limits based on average daily account balance, overdraft history, and deposit patterns.
- Complex transaction postings The order in which check, debit card, and other transactions are posted to an account can influence the number of overdraft fees—and banks all do this differently. Some process transactions at periodic intervals throughout the day, some only at night. Some process debits in order, some from largest to smallest during a single day.