U.S. agency to probe bank overdraft fees

Of all the bank fees that customers love to hate, overdraft charges on checking accounts have to be near the top. The government's new consumer protection agency appears to agree.

The Consumer Financial Protection Bureau said Wednesday that it will investigate overdraft fees, including how they are marketed and explained to customers. The agency said the probe could result in additional rules, perhaps even lawsuits.

Overdraft fees are charged by banks when customers try to spend more money than they have in an account. Banks will allow the transaction, then charge the customer a penalty of as much as $35.

"We've heard many stories about the $40 cup of coffee," the agency's director, Richard Cordray, told reporters and representatives from banks and consumer groups.

Cordray and representatives from four consumer advocacy groups said that the overdraft fees hurt the people who can least afford them, because poorer customers are more likely to drain their checking accounts to close to zero.

Since the 2008 financial crisis, the government has clamped down on bank practices that it considers unfair. In 2010 the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card or ATM transactions. Without overdraft protection, a transaction is declined if the customer can't cover it.

Banks have responded by marketing overdraft protection aggressively.

Banks collected $29.5 billion in revenue from overdraft fees in 2011, according to research firm Moebs Services.

Cordray praised banks for finding ways to help customers avoid the fees, such as not charging overdrafts for purchases of less than $5 or giving customers 24 hours to add more money to an account.

Andrew Rowe, a senior vice president from Bank of America, said the bank sends text messages when accounts drop below $25. Last month Bank of America sent 20 million such texts to 8 million customers.