Regulators Say Overdraft Protection Is a Loan in Disguise

Photograph by Larissa Belova/Getty Images

Many banks let consumers spend more money than is in their accounts under the name of overdraft “protection.” For a fee—$34 on average—banks front the amount overdrawn, which they then deduct when the consumer next makes a deposit. A few prepaid debit cards allow overdrafts as well, typically for $15 a pop. Banks call this a service. The Consumer Financial Protection Bureau disagrees. In a new set of rules for prepaid cards proposed on Wednesday, the CFPB says charging to overdraft is actually a form of credit.

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