Overdraft policies levied by banks to be reviewed

Major financial players such as Wells Fargo and Co, JP Morgan and Chase and many more, in addition to smaller financial institutions are dependent on the money generated through overdrafts in terms of retail banking. An economic research firm based in Illinois, Moebs Services, unearthed information that all the lenders, both large and small, were all ready to charge their account holders overdraft fees of up to $38 billion in the year 2011.

Cordray said that the agency is currently looking into this aspect and also sent out a warning saying that appropriate action will be taken against financial institutions that coerce their account holders to opt for very highly priced overdraft protection. During the course of the speech made at Hunter College’s Roosevelt House Public Policy Institute located in New York, Cordray said that the bureau is all set to take relevant actions against banks and credit unions that are found to be practicing errant policies and resorting to unethical practices to bring in revenue. He went on to say that it was wrong on the part of the lenders to confuse consumers with a lot of information that are beyond their comprehension just so the banks can make money.

In the year 2009, the Federal Reserve mandated that customers should voluntarily opt for overdraft protection rather than be offered that protection by default since the terms and conditions are rigid and the fees are also high in certain cases.

Customers end up with overdrafts when they spend money over their limited means of earning. This occurs when consumers either withdraw money or issues checks in excess of the money that is present in their checking account. Financial institutions charge customers are certain amount as fee when the balance touches zero and the money that is offered as overdraft is treated as a loan that generates revenue for the banks.