Bank of America, JPMorgan Face More Overdraft Pain (Update 1)

NEW YORK (TheStreet) -- -- Bank fee income, already under pressure from a host of new regulations, might be further threatened by the Consumer Financial Protection Bureau's latest probe into overdraft practices.

Overdraft fees have already declined for the industry following the implementation of a rule under Dodd Frank called Regulation E in 2010, that mandated that banks make customers opt in for overdraft protection instead of enrolling them by default.

Consumer Financial Protection Bureau Director Richard Cordray

U.S. bank overdraft fees have dropped 20% from $37 billion in 2009 to $29.5 billion in 2011 according to industry consultant Moebs Services. The decline came even as banks moved to raise the average overdraft fees by as much as $4 to $30 over the two- year period.

Still, the CFPB is targeting overdraft practices once more. "Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it," CFPB director Richard Cordray said in a statement on Wednesday as he announced the bureau's latest inquiry. "We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

One practice the bureau is zooming in on is the processing of orders starting with the largest first rather than chronologically, thus allowing them to charge fees on a number of small transactions. Banks have claimed that they process large transactions first because customers likely deem them more important.

The bureau will also look into how banks disclose overdraft terms and whether customers receive misleading information about overdrafts, noting the difference in the opt-in rates of overdraft fees between banks.