Wells Fargo to hold home preservation workshops in Baltimore

— Wells Fargo & Company (NYSE: WFC) is hosting a free Home Preservation Workshop in Baltimore for Wells Fargo Home Mortgage, Wells Fargo Financial and Wells Fargo Home Equity customers facing financial hardships. Wells Fargo has invited more than 17,000 mortgage customers to the free workshops scheduled Tuesday, Oct. 8 from 9 a.m. to 7 p.m., at the Baltimore Convention Center – Hall G – located at 1 West Pratt Street. Parking for workshop participants is free at the Self Park lot located at the Sheraton Inner Harbor at 300 South Charles Street.

Local nonprofit credit counseling agencies –Local nonprofit credit counseling agencies – St Ambrose Housing Aid Center, Belair-Edison Neighborhood, and Neighborhood Housing Services of Baltimore – will be onsite to provide assistance to homeowners who have credit challenges that extend beyond their mortgage payments.

Homeowners whose loans are “under water” – meaning they owe more on their mortgage than the value of their home – may be eligible to refinance their loan based on certain criteria, including demonstrating ability to repay. Depending on eligibility for a loan modification, homeowners who are behind on their payments may also receive a principal reduction on their mortgage.

How to register for Wells Fargo’s Home Preservation Workshop:

Walk-ins are welcome although registration is strongly recommended in order to guarantee the ability to meet one-on-one with a representative. Customers should register for the Baltimore by Oct. 6 at www.wfhmevents.com/leadingthewayhome or call 1-800-405-8067 for more information.

“While our foreclosure and delinquency rates are below the industry average, and nationwide we have assisted more than 882,000 customers with modifications, our goal with this workshop is to help as many homeowners as possible avoid foreclosure,” said Marie Day Hayes, Wells Fargo Home Mortgage Community Outreach Manager. “During these free workshops, Wells Fargo Home Mortgage customers who are faced with payment challenges will have the opportunity to meet face-to-face with our home preservation specialists to explore the options available to them.”

Where possible, borrowers will receive a decision on a workout, loan modification or other options, on site or shortly following the workshop. Options include Wells Fargo’s own loan modification program and the federal government’s Home Affordable Modification Program (HAMP). About 75 Wells Fargo home preservation specialist team members, including bilingual specialists, will be on hand at the upcoming workshop to assist customers.

Customers facing mortgage payment difficulties also can call 1-800-678-7986 for more information about potential options to avoid foreclosure.

Payday loans still a deliberate debt trap

Payday loans – the small loans that come with big fees and triple-digit annual interest rates – pose serious threats to the financial well-being of borrowers. That was the conclusion reached by the Center for Responsible Lending (CRL).

“Whether they receive the loans online, in storefronts or through banks, the vast majority of borrowers cannot both repay the loan and cover all their basic living expenses until their next payday,” states the report. “Payday loans create a debt treadmill that makes struggling families worse off than they were before they received a payday loan.”

The newest chapters of CRL’s research series, The State of Lending in America, covering payday loans find these products continue to create a cycle of debt in which borrowers take out a loan, ostensibly pay it back, and then run out of money and have to take out numerous additional loans to afford their living expenses. In fact, even though payday loans are marketed as a convenient way to handle unexpected emergencies, the vast majority of borrowers use the loans for everyday expenses. Borrowers across the country pay more than $3.4 billion in fees. Further, more than two-thirds of these fees – at least $2.6 billion – are the direct result of payday loan “churning” or rapid and successive re-borrowing.

Any of five factors can create borrower problems and can lead to payday lending’s debt treadmill:

Lack of underwriting for affordability – the lending model relies on borrowers’ inability to afford their loans; High fees – often at an annual percentage rates of 400 percent or more; Short-term due dates – usually a borrower’s next payday, generally around two weeks; Single, balloon payment – the entire principal and related fees are due at the same time; and Collateral in the form of a post-dated check or access to a bank account – the lender is first in line to be repaid, leaving many borrowers short of funds for living expenses.

After years of consumer-focused reforms, 22 states, including the District of Columbia have enacted laws to curb or eliminate payday’s debt trap. In recent years, states with varying locales and demographics have rejected payday lending’s triple digit rates and imposed rate caps: Arizona, Montana, and Ohio.

In 2006, enactment of the Military Lending Act created a 36 percent rate limit and prohibited the holding of a post-dated check from active-duty military and their families.

Now, more payday-related developments are occurring at the federal level. Two regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller, are developing guidance to crack down on payday lending by the banks they supervise. Additionally, the Consumer Financial Protection Bureau (CFPB) recently issued a comprehensive report that reviewed more than 15 million accounts. CFPB is considering rules to address its own finding that the typical borrower is indebted for nearly 200 days in a year.

Even so, today 29 states still have no substantive restriction on payday lending.

Payday lenders in just 10 states collect 83 percent of all fees. Nationwide, there are 16,341 store locations; but only nine major operators control nearly 50 percent of these stores. Leading the list of states with the most payday lending activity are Texas and California followed by a host of Southern states including Alabama, Florida, Louisiana, Mississippi, and Tennessee.

In the area of bank payday lending, CRL found that:

Bank payday borrowers are two times more likely to incur overdraft fees than are bank customers as a whole;

More than one-quarter of bank payday borrowers are Social Security recipients; and Bank payday loans carry an annual percentage rate that averages 225-300 percent.

Clearly continued state and federal reforms are needed. For a nation that prides itself on freedom, predatory debt is simply un-American.

For more information on the new chapters go to CRL’s web at: http://rspnsb.li/16pWoLB.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: Charlene.crowell@responsiblelending.org.

Layaway makes comeback in holiday shopping plans

— This year is going extremely fast. Some homeowners have already started to put up their Halloween decorations. Merchants, far ahead of themselves, are advertising Thanksgiving food items. Here in September, some of you may already have Christmas on your minds. While I recognize that layaway plans are not as prevalent today as in the past, it is obvious that such plans still exist in some establishments. This was readily apparent from an email I recently received which emphasized free layaways for up to thirteen weeks. The national chain superstore which advertised this layaway plan has several locations here in the Greater Delaware Valley. If you grew up during the period when many of us had limited resources, yet had many needs as well as desires, you must recall that you could purchase almost anything by placing it on layaway back in the day.

Even if you did not engage in purchasing items under a layoff plan, I suspect that you have memories of your parents, other family members or friends making purchases through this delayed payment arrangement. It was commonplace for stores to arrange for shoppers to place merchandise on hold while making small payments until the cost was completely paid. I still recall signs in stores advertising that layaway was available to shoppers. If there was no sign, I remember my mother asking the salesperson if the store offered a layaway plan. If so, the purchase of a desired item was held by the store with a deposit and a specific payment plan. I understand from some of my friends that a fee was added to layaway purchases for the opportunity to make a purchase under a layaway arrangement but I do not recall such a fee.

Layaways were easy; everyone qualified for a layaway since there were no credit checks. Such arrangements involved no risk for the merchant. However, layaway involved some risks for the consumer. Perhaps you recall someone that signed up for a layaway plan and failed to make regular payments or failed to complete payments by the designated time. This happened quite often around holidays, in particular, Christmas. If you failed to make payments you lost the merchandise and also any money paid into your plan at that point. Since credit cards were not readily available, in the absence of cash, the layaway plan was the only way many of us were able to make a purchase, in particular the purchase of “big ticket items” back in the day.

My first personal experience with layaway was during my first year out of college, working my first job. I would often time walk down the street from my job and window shop. One day, after seeing a sweater in the store window over several weeks that I desperately wanted, I went inside to inquire about the price; a price which I knew I could not afford. Upon sharing this with the store manager, he advised that I could put it on layaway and provided the details for the layaway plan. I agreed to the layaway plan for the sweater and was given a deadline by which the full payment had to be made. I was given a receipt with my initial payment and each time I made a payment, it was recorded on the same receipt. I was told that my purchase would be held in the store’s layaway room. You may recall that stores had a separate room for layaway purchases. You can imagine my anticipation of getting my sweater once all payments were made and the gratification once I was able to take it out of the store. While I paid no additional fee for the layaway purchase of my sweater, it did open the door for a problem that some of you may have encountered under layaway plans. The ease and simplicity of making these layaway purchases, especially of pricey items, appeared to be quite manageable. However, this plan actually enticed me to overspend, overextend and overcommit myself by making unnecessary purchases, back in the day.

Layaway plans were also used for purchases other than clothing. If it was a television, you turned to layaway; a refrigerator, it was layaway; a sofa or dining room set, again it was layaway. If it involved toys that you told your children they would find under the Christmas tree as gifts from Santa Claus, often times, they got there by way of the layaway plan. The major problem was that if the item was being purchased for a special occasion such as Christmas you had to start making payments weeks, even months, far in advance. Interestingly, the reason why layaway plans came into existence in the past is the same reason why we see a resurgence of layoff plans in today’s retail environment.

An article by Bill Hazelton, CEO of Credit Card Assist, provides some background with regard to layaway. He indicates that layaway first became popular in the 1920s and 1930s when the Great Depression was in full bloom. It provided a way to make large purchases possible by breaking the purchase price down into more manageable payments. It is no secret that layaway plans started to disappear in the 1980s with the increase in the availability and use of credit cards. Thus, it should not be surprising to learn that layaways are returning because of the high interest rates that are now being charged for the use of credit cards. The return to layaway is welcomed news for some consumers who may have missed credit card payments and have poor credit. Missing a payment on a layaway plan has no impact on one’s credit score.

If you grew up back in the day and relied on layaway to make purchases on a regular basis, I know that you had some unexpected challenges. Did you ever have an item on layaway and the store went out of business? The reality is that you ended up without your merchandise and without your money. What happened after you made several layaway payments and then as sometimes happens your money became real tight and you were unable to complete the purchase? In some cases, because you did not have clarity with regard to the layaway rules, you forfeited the item as well as your money. Has anyone had an item on layaway only to have it go on sale? So, what occurred if a young lady made a layaway of a dress at this time of the year for New Year’s Eve and her eating habits were out of control? I do not know what happened when the new requirement is for a size 10 dress when the dress on layaway is a size eight.

While layaways of the past have seen a re-launch in recent years, such plans have drawn the scrutiny of congressional leaders such as U.S. Sen. Charles Schumer who is a staunch opponent of layaway plans.

Because there are no federal laws that control layaway plans, consumers must rely on the Federal Trade Commission Act against unfair and deceptive practices. The Federal Truth in Lending Act also comes into play if the consumer must agree to terms in writing to make all payments until an item is paid in full. Furthermore, there are those that argue that layaway plans are far worse in making purchases than credit cards.

Think about the old adage, “What goes around comes around,” as this is the case with the return of the concept of layaway today. If you are considering the purchase of something today, and you do not have cash and using a credit card may not be something that is available to you, layaway may be your only option. Just consider that it is one of those old fashioned ways to get things that you want and to get things you need today, just as our parents did, back in the day.

Alonzo Kittrels can be reached at backintheday@phillytrib.com or The Philadelphia Tribune, Back In The Day, 520 South 16th Street, Philadelphia, PA 19146.

Howard County to host “Housing Matters” mini-fair

— Howard County Housing will host its second annual “Housing Matters” Mini-Fair on Saturday, September 21 from 9:00 a.m. to 1:00 p.m. in the Howard County Public School Conference Center at the Ascend One Building, 8930 Stanford Boulevard in Columbia.

This FREE event will showcase everything individuals and families need to know about homeownership and renting.The Mini-Fair will feature at least 12 educational sessions, highlighting some of the following topics: the role that credit scores and criminal background checks play in the approval process; lease compliance; qualifying for a mortgage; buying your first home (taught in English and Spanish); the settlement process; the role of insurance in housing stability and other relevant topics.

“We’ve received your requests and are proud to respond by offering our popular ‘Come Home to Howard County’ Housing Fair education sessions more than once a year with our ‘Housing Matters’ Mini-Fair in September,” said Tom Carbo, Howard County Housing Director. “I encourage everyone to take advantage of this great opportunity.”

The Mini-Fair also offers attendees the chance to speak with mortgage lenders, real estate and housing professionals. Among the organizations participating are: Consumer Credit Counseling Services; Lakeview Title Company; Pillar to Post Home Inspection; Bank of America; the Maryland Department of Housing & Community Development; the Maryland Insurance Administration; greeNEWIT; and Long & Foster. County personnel will also be available to answer questions about the programs and services that make Howard County such a great place to “come home to.”

In addition, attendees will be able to receive a free credit report and consultation and participate in prize drawings at 12:45 p.m. FREE childcare will be offered onsite courtesy of the County’s Department of Recreation & Parks.

For more information about the “Housing Matters” Mini-Fair and to register for education sessions visit www.howardcountyhousing.com.

Program returns foreclosed borrowers to homeownership

In the aftermath of more than 2.5 million foreclosures, the Federal Housing Administration (FHA) is now offering a homeownership program that will put previously troubled borrowers on a fast-tracked return to the home ownership market. The new program, known as “Back to Work – Extenuating Circumstance,” cuts the standard three-year waiting period to only 12 months.

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Charlene Crowell, NNPA Columnist

According to Charles Coulter, HUD’s Deputy Assistant Secretary for Single Family Housing, “We understand that families occasionally experience financial difficulties that are simply beyond their control. We already have a policy allowing for exceptions to this waiting period when there is an extraordinary life event. This Mortgagee Letter is a targeted expansion of that policy.

“As part of FHA’s ongoing mission” Coulter continued, “we want to make sure that qualified borrowers are not being unnecessarily shut out of the market. We ‘re looking forward to working with our industry partners to strengthen our housing market, to protect FHA’s insurance fund, and to make certain access to credit remains available for future generations of homeowners.”

That’s good news for borrowers who lost their home because of specific financial hardships but can now demonstrate they have regained previously lost financial ground. The list of eligible financial hardships reads like a list of housing crisis woes:

Housing Crisis Woes

Chapter 7 or Chapter 13 bankruptcy

Deed-in-lieu

Forbearance

Foreclosure

Loan modification

Loss of income, employment or both that totaled at least 20 percent of previous earnings for at least six months, including copies of applicable termination notices or changes in employment status

Pre-foreclosure sales

Short sales

Additionally, consumers must also meet other verifiable measures to participate in the program:

Proof of borrower’s current income – usually W-2 forms or federal tax returns that show the desired mortgage would be affordable and sustainable;

Credit history pre- and post the eligible hardship event that is free from late payments or other major credit issues, including rental housing payments and accounts delinquent by 30 days or more;

Credit score of at least 500; and Housing counseling by a HUD-approved counselor at least 30 days but no more than six months before submitting an FHA application.

For consumers meeting all of these criteria as well as other standing FHA mortgage guidelines, the Back to Work program is now available nationwide through FHA-approved lenders. Once participating lenders determine that mortgage applicants meet all eligibility and policy criteria, the same 3.5 percent minimum FHA down payment requirement will apply. Mortgage insurance and closing costs will also apply.

Only one FHA program is ineligible for the Back to Work program: reverse mortgages.

Earlier research by the Center for Responsible Lending found that more than 2.5 million homes were lost to foreclosure during the housing crisis. According to CoreLogic, a firm providing data and analysis to financial services companies and real estate professionals, the number of homes in some state of foreclosure dropped below the million-mark as of July 2013, to 949,000. This figure also represents a drop of 32 percent since July 2012.

Underwater mortgages, properties that are now worth less than their purchase price, also continue to haunt housing recovery. As of May 2013, Core Logic, the firm specializing in residential property information, found that 11 states had more than 1-in-5 underwater homes. The states with the seven highest numbers of underwater properties were Arizona, Florida, Georgia, Michigan, Nevada, California and Illinois.

As CRL has stated before, the housing crisis is not yet over. But programs that enable former troubled borrowers to regain the pride of home ownership and the chance to build family wealth have to be good news.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.

Average cost to raise a kid: $241,080

— From day care to the monthly grocery bill, the cost of raising a child is climbing at a rate that many families can’t keep up with.

It will cost an estimated $241,080 for a middle-income couple to raise a child born last year for 18 years, according to a U.S. Department of Agriculture report released Wednesday. That’s up almost 3% from 2011 and doesn’t even include the cost of college.

At the same time, wages aren’t keeping up. The country’s median annual household income has fallen by more than $4,000 since 2000, after adjusting for inflation, and many of the jobs lost during the recent recession have been replaced with lower-wage positions.

The USDA’s latest estimates include expenses for housing, food, transportation, clothing, health care, education and child care, as well as miscellaneous expenses, such as toys and computers.

The biggest price tag is for families in the urban Northeast earning $105,360 or more. They will spend $446,100, much more than the national average, according to the report. Meanwhile, families earning less than $61,590 a year in rural areas will spend the least, at $143,160.

While expenses in all categories rose in 2012, health care, education and child care spending increased the most.

Health care spending made up around $20,000, or around 8%, of the USDA’s estimated child-rearing expenses for a child born in 2012. Meanwhile, child care and education expenses represented nearly 18% of the total costs for middle-income parents.

Since 2000, the cost of child care has increased twice as fast as the median income of families with children, according to the most recent report from Child Care Aware of America. In 2011, the average cost of full-time center-based care for an infant ranged from about $4,600 a year in Mississippi to more than $15,000 in Massachusetts.

“Many families are priced out of licensed child care services,” said Lynette Fraga, executive director of the nonprofit group. “If they are priced out, then the health and safety of those children are at risk.”

Amanda Holdsworth, who lives outside of Detroit with her husband and 22-month-old daughter, pay more than $1,000 a month for their daughter’s day care center — or nearly 15% of their monthly income. The costs are so high that they think twice about having a second child.

“To think about paying two day care rates, it’s shocking,” she said.

Another factor hurting families: rising transportation and food costs. Gas prices almost doubled between 2000 and 2012, even after adjusting for inflation, according to AAA. Meanwhile, food costs have spiked.

Millions without credit scores not so risky after all

— Millions of Americans don’t have credit scores. And while lenders typically steer clear of this group, it turns out they aren’t always as risky as banks think.

There are at least 64 million “unscoreable” consumers out there, estimates Experian, one of the three major credit bureaus. These consumers are often immigrants or recent college grads who have little to no credit history or they are people who haven’t had an active credit account for at least six months. They may be completely responsible or they could be financial train wrecks waiting to happen — lenders have no easy way to tell because there is no credit score available.

Credit scoring company, VantageScore, is trying to shed light on this mysterious group with its newest scoring model, which it estimates can assess an additional 30 to 35 million people who were previously unscoreable. It does this by looking at 24 months of credit history, rather than six months, and by considering alternative data like rent and utility payments and public records when available.

“The unscoreables are a big population and in today’s rather conservative credit climate they’re having a hard time finding mainstream credit,” said VantageScore CEO Barrett Burns. The VantageScore model was created by the three major credit bureaus — Experian, Equifax and TransUnion.

VantageScore found that 10 million, or about a third of unscoreable consumers, aren’t high risk at all — instead, they were determined to be near-prime or prime. Burns calls this the “sweet spot” for lenders, because it means a consumer isn’t so risky that a lender would lose money taking them on as a borrower and they’re not such low risk that a creditor is forced to reward them with the best terms available.

The largest groups of unscoreable consumers hold professional jobs or are retired, more than 40% are homeowners, and income distribution is in line with the consumers who do have scores, according to VantageScore’s research.

“It really surprised me at how good looking these consumers are — from job characteristics to home characteristics,” said Burns. “I don’t believe any of us knew how big this audience was and how attractive they are.”

Burns said most of the nation’s biggest lenders are already testing the new model.

This could be a major untapped market for lenders, said John Ulzheimer, credit expert at CreditSesame.com.

“If you told a lender out there, ‘hey, we flipped over a rock and found 35 million new customers,’ they would be very interested, and that’s what VantageScore is doing,” said Ulzheimer.

The issue is getting other scoring companies to follow suit. FICO, the most commonly used score by lenders, still only scores people who have had active accounts within the past six months.

“Until other scoring models look at more credit history or use other ways to score, there’s going to continue to be a large number of people who don’t have scores under the models used by lenders and will therefore be denied credit,” said Ulzheimer.

But FICO says it is able to score nearly 95% of consumers with thin credit files and 75% of consumers with no credit files by looking at alternative data like bank accounts.

While new scoring models can help millions land loans and better rates, the best way to ensure you don’t get denied is to start building credit on your own, said Ulzheimer.

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Morgan State University joins Maryland’s “House Keys 4 Employees” Program

— More than 1500 employees at Morgan State University became eligible for additional down payment assistance from Maryland Mortgage Program products after the fast-growing campus in northeast Baltimore joined Department of Housing and Community Development’s (DHCD) House Keys 4 Employees program.

Through Partner Match programs such as House Keys 4 Employees, DHCD provides a dollar-for-dollar match of up to $2,500 to a participating partner’s financial contribution for down payment and closing cost assistance.

Down payment assistance is one of the significant features of the Maryland Mortgage Program, the state’s flagship homeownership initiative. Maryland Mortgage Plan borrowers can apply for up to $5,000 toward their down payment, at a zero percent interest rate, repayable upon sale or transfer of the home or when the loan is refinanced.

An eligible family can combine the down payment assistance from Partner Match and other programs for significant savings.

Recognizing that homeownership plays an integral role in the economic vitality of Maryland, DHCD has formed partnerships with participating employers, builders and community organizations throughout the state— as well as with local governments— to promote homeownership and Maryland’s “Smart, Green & Growing” initiatives.

DHCD now has 272 Partner Match participants, including 144 House Keys 4 Employees partners. To learn more about the House Keys 4 Employees, the Builder/Developer Incentive, and Community Partner Incentive programs, visit: www.mmprogram.com.

Barbara Jacques leads her business down right path

— Leaders are defined as those who know how to take control, manage tasks, and provide effective guidance and direction. Barbara Jacques, founder and creative director of Jacq’s Organics, is the epitome of an outstanding leader. In fact, she was recently selected by Legacy Magazine as one of “South Florida’s 40 Under 40 Leaders of Today & Tomorrow for 2013.” Barbara Jacques is one South Florida entrepreneur who is leading her business down the right path!

“I am honored and thrilled to be selected among an elite group of young professionals as a leader of today and tomorrow,” Jacques shared. “As a young professional, I am proud of my accomplishments, but I will not rest on my laurels. I have my sights on continuing to lead my company to new heights.”

And successfully leading her company is exactly what she has been doing. She founded Jacq’s Organics out of a need for products that were safe, luxurious and skin oisturizing. A self-proclaimed herbal and beauty guru, she learned early that many, beauty, body and baby products contain harmful ingredients such as parabens, sulfates, silicones and phthalates to ensure shelf life. So, she set out to create products that are luxe, which multitask and are safe enough for the entire family to use.

Jacques defines Jacq’s Organics as a collection of skin nourishing products that harness the moisturizing, restorative and healing properties of 100-percent natural and organic ingredients— free of preservatives and synthetics. She shares that each product is formulated with skin loving Aloe Juice, moisturizing Shea Butter and soothing Essential Oils to nourish, heal and protect your skin from head to toe.

The company’s mission is to create products that promote healthy and preservative free alternatives that everyone in your family can love and enjoy. Jacq’s Organics products consist of an all-natural skin care line that feature handcrafted face, bath and body products. From cleansing products (soap bars) and toning products (face toners) to moisturizers (Botanical Shea creams) and gift sets offering the best of all worlds, Jacq’s Organics offers something for everyone. The company’s tagline is fittingly: Live. Love. Bathe.

“Our philosophy is to focus on simplistic and premium products that are moisturizing, healing, restoring, vitamin and antioxidant enriched to deliver a luxurious experience,” Jacques explains. “That’s why each and every product is artisanally crafted with aloe and exotic butters to provide direct benefit using pure high grade ethically sourced raw ingredients. We believe life is about enjoying the simple things and spending time with the ones you love.”

A native of Miami, Florida, Jacques attended the University of South Florida where she earned a Bachelor of Arts degree in Communications. With an uncanny drive to help and aide those in need, she has worked in development at a wellknown national not-for-profit and community-based organization. She resides in Fort Lauderdale, Florida with her husband and daughter, James and Arianna.

For more information about Jacq’s Organics or a complete list of all products offered by the company, call 754- 300-6645 or visit: www.jacqsorganics.com.

Overdraft fees cost consumers $16.7 billion

— In recent years, many banks and credit unions have encouraged new checking account customers to accept two items: a debit card that replaces cash transactions and a “protection” known as overdraft coverage. Overdraft programs automatically pay for transactions not covered by available funds; the bank then repays itself the overdraft amount along with fees – often hefty ones – from the customer’s next deposit.

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Charlene Crowell, NNPA Columnist

However what many unsuspecting consumers soon discover is that this so-called protection from banks comes at an extremely high cost. In 2011, financial institutions charged consumers $16.7 billion in overdraft fees, affecting more than 36 million Americans’ checking accounts.

High-Cost Overdraft Practices, the latest installment in the Center for Responsible Lending’s research series, The State of Lending, found that debit cards trigger the most disproportionate fees. On debit card purchases, the median overdraft charge is $35 for a $20 overdraft. Further, debit card and ATM transactions account for at least 35 percent of all overdraft fees charged.

The high share of fees generated by debit cards is ironic, since banks and credit unions can simply decline these transactions at no cost to the consumer – and some institutions do. For banks that continue this pernicious practice, the consequences for their customers can be severe.

The report states, “Abusive overdraft programs drive consumers out of the banking system; indeed they are the leading reason consumers lose their checking accounts.”

Today, three-fourths of the nation’s largest banks and large numbers of smaller banks and credit unions charge fees on debit card purchases, ATM withdrawals, or both. Moreover, these overdrafts and associated fees are assessed without regard to a consumer’s ability to repay them.

In response to widespread criticism surrounding overdraft programs, the Federal Reserve Board made a 2010 regulation that required institutions to obtain a customer’s ‘opt-in’ for overdraft coverage on debit card purchases and ATM withdrawals before fees would apply. Additionally and in the same year, the Federal Deposit Insurance Corporation’s guidance advised that more than six overdraft fees within a 12-month period was excessive for any account holder.

However, CRL and others have found that many financial institutions aggressively market their overdraft programs, pushing customers most likely to generate the most fees to “opt-in” for coverage. Customers with small and no cushions in their accounts may initially view overdraft coverage as a way to save money. But as overdraft fees are assessed per transaction, the costs can quickly become burdensome, leaving fewer available dollars for the next month.

“Over time, the repeated fees strip away consumers’ cash assets, leaving them financially worse off than when they first over-drafted and unable to meet obligations they otherwise could have met even with no overdraft coverage at all,” says CRL.

Some major banks have heeded consumer concerns and improved their overdraft practices. For example, Bank of America, the nation’s largest debit card issuer, stopped charging overdraft fees on debit card purchases. HSBC also stopped charging overdraft fees on debit card purchases as well as at ATMs. Citibank has never charged overdraft fees on debit card or ATM transactions, and JP Morgan Chase does not charge them on ATM transactions.

Recent related findings by the Consumer Financial Protection Bureau (CFPB) show that the Fed’s opt-in rule has not eliminated the substantial harm inflicted by overdraft fees triggered by debit cards. CFPB determined that involuntary account closures were more than twice as likely for customers that opted in to overdraft than those who did not.

“Banks and credit unions have long defended overdraft fees by saying they protect customers from bounced checks, which typically trigger insufficient funds (NSF) fees and potentially merchant fees,” states the CRL report. “But the same justification could not be made for debit card purchases, since there is no NSF or merchant fees charge for debit card transactions that are declined at check-out when the customer’s account is short.”

CRL offers a set of policy remedies to halt overdraft’s harmful features. Highlights include banning overdraft fees on debit cards, ATM transactions and on pre-paid cards. CRL also advocates banning banks from manipulating the order of consumers’ checking transactions to increase fees.

Concluded CRL, “Without substantive reform of the product, the fees overdrafts generate provide financial institutions too powerful an incentive to ensure that customers continue to incur overdraft fees – an incentive that will continue to outweigh even the best disclosures.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: Charlene.crowell@responsiblelending.org.

Read more: http://www.nnpa.org/overdraft-fees-cost-consumers-16-7-billion-by-charlene-crowell/#ixzz2bDDyp0w7