The Consumer Financial Protection Bureau (CFPB) is taking a fresh look at costly overdraft fees and is considering imposing new rules on the controversial practice.
This debit card overdraft problem is eerily reminiscent of the subprime mortgage fiasco, which nearly imploded the U.S. economy in 2008. Mortgage lenders made unsuitable loans to low-income families knowing full well they didn’t have the means to make the payments.
Unfortunately, there was a financial incentive for everyone along the mortgage lending pipeline to continue to issue subprime loans.
Now, with debit cards, there is a financial incentive for banks and credit unions to sign a certain segment of debit card users up for overdraft protection services — so that the lenders don’t lose a large source of revenue.
The more customers screw up their accounts, the more overdraft revenue a bank collects. All sorts of alarms should be going off here.