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The $32 Billion Bank Heist You're Paying For

By Dan Caplinger - Updated Mar 7, 2017 at 2:36PM

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Bank customers pay far too much on overdraft fees.

Bank robberies conjure up images of famous criminals like Jesse James or Bonnie and Clyde. But nowadays, many consumer groups are accusing banks of having turned the tables on their customers, taking billions of dollars from their accounts every single year. As appalling as that sounds, it's perfectly legal, and it all happens because so many customers voluntarily do something they could easily avoid: They overdraft their checking accounts.

Bank robbers Bonnie Parker and Clyde Barrow, also known as Bonnie and Clyde. Source: Library of Congress via Wikimedia Commons.

The appalling statistics on bank overdrafts
The amount of money involved in bank overdraft fees makes the worst bank heists in history seem like pocket change by comparison. According to a study by Moebs Services, bank customers paid $32 billion in 2012 on overdraft fees. That's actually down from $37 billion in 2009, but it's up slightly from 2011.

Millions of customers pay overdraft fees, with Moebs estimating that 38 million checking accounts -- more than a quarter of the total number of such accounts in the nation -- frequently incur overdraft fees. With a typical charge for overdrafts coming in at around $30 for banks and $27 for credit unions, incurring those fees multiple times can quickly add up to a huge burden on customers.

Payday lenders: the better alternative?
Perhaps the most surprising thing about the study is that payday lenders may actually be a lower-cost source for people short on cash than banks. As much as payday loan operators Cash America (NYSE: CSH) and Fast Cash Financial (FCFS) and pawn-shop giant EZCorp (EZPW -0.28%) have been criticized for their high fees, the Moebs study found that typical fees at payday lenders were just $16 -- well below the typical overdraft charge.

When will the fees end?
Last year, the Consumer Financial Protection Bureau took on high overdraft fees with an investigation into whether certain bank practices improperly increased the amount customers were charged. Among the areas the CFPB examined were transaction-reordering guidelines that often lead to multiple overdraft charges, as well as misleading marketing materials.

CFPB Director Richard Cordray. Source: CFPB.

If the CFPB is successful in limiting overdraft fees, the impact could be huge. Already, Bank of America (BAC -1.71%), Citigroup (C -0.06%), and other banks have ended the practice of resequencing transactions in a way that could increase fees. Yet as Fool contributor Amanda Alix noted at the time, further limits could cost banks 3% to 4% of their earnings, with B of A's losses potentially amounting to $480 million. Until the CFPB plugs all the potential loopholes, high-cost overdrafts will continue to happen.

Protect yourself
In the end, as ridiculously simple as it sounds, the only way you can stop banks from taking your hard-earned money is to stop overdrafting your checking account. Given how common overdrafts are, though, millions of Americans don't appear likely to follow that advice anytime soon.

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Citigroup Inc. Stock Quote
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EZCORP, Inc. Stock Quote
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