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High Cost and Hidden From View: The $10 Billion Overdraft Loan Market

Wednesday, July 06, 2005

Overdraft loans (also called "bounce protection" plans) are offered by banks to low-income consumers. In exchange for covering account overdrafts up to a set dollar limit, banks charge bounced check fees ranging from about $20 to $35 for each transaction. Some banks also charge a per day fee of $2 to $5 until the consumer's account has a positive balance. In addition to writing checks, customers can borrow against their bounce protection limit using their debit cards and by making ATM withdrawals. Through a loophole in Federal Reserve rules, institutions do not have to call these bounced check programs extensions of credit and therefore don't disclose that they are charging people 1,000% interest on the loans. Here's more from the Center for Responsible Lending.
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