CFPB report: Bank overdraft fees used as expensive form of credit

Bank customers who use account overdrafts to tide themselves over are paying out the nose to do so, according to a new report from the Consumer Financial Protection Bureau.

"Consumers often are paying $34 to have the bank spot them $24 or less for no more than a few days," bureau Director Richard Cordray told reporters Thursday.

It's a "very expensive way to cover a small cash shortfall," Cordray said.

The agency's report, based on data from millions of bank accounts, suggests that a small minority of bank customers account for the vast majority of bank overdraft fees, and that those people tend to have poor credit. Customers who choose to pay overdraft fees on debit card transactions and ATM withdrawals pay almost $450 more annually than those who don't, an indication of how they might intentionally be using overdrafts.

Some people may intentionally overdraft their accounts, choosing to pay the steep fees involved to pay a bill or cover some emergency. Overdrafts are one alternative to payday loans or other forms of emergency borrowing. The agency has a written a rule that would overhaul the payday lending industry, although it has not moved to finalize that rule. Payday lenders, who have warned that the rule could eliminate much of their industry, have said that their businesses are an alternative to overdrafts or intentionally bounced checks.