Banks mislead customers about overdraft fees (MSN Money)

The costs and risks of overdraft protection are not well understood by many Americans. So it's no surprise that a new study using mystery shoppers found that big banks' explanations of overdraft protection programs are inconsistent and unclear.

That was one major finding in a report (.pdf file) by the California Reinvestment Coalition, Woodstock Institute, Reinvestment Partners and New Economy Project. The four organizations are calling upon the Consumer Financial Protection Bureau and federal banking regulators to toughen up consumer protections.

A little background: Banks used to automatically enroll customers in so-called overdraft protection, which enabled the bank to cover the overdraft and then charge the customer a fee. In 2009, a new federal rule said customers would have to choose or opt in to this overdraft program if they wanted it. It's clear that many people are still confused.

According to a press release about the report: "The numerous conflicting and confusing messages given to the secret shoppers in more than 60 visits to bank branches should be great cause for concern for banks and for their regulators. These visits show that the $35 cup of coffee ($5 for coffee, $30 for overdraft fee) is alive and well. Overdraft opt-in rules are clearly not enough to protect consumers from this expensive product," said Paulina Gonzalez, executive director of the California Reinvestment Coalition.

In the study, 64 mystery shopper visits were made to 39 big-bank branches in New York City, Oakland, Calif., Chicago and Durham, N.C. Four of the biggest banks in each city were selected. For each bank, the shoppers visited two branches in predominantly white neighborhoods and two branches in communities of color, the release said.

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