Exploding Overdraft Fees

By Hans Eisenbeis

What’s Happening

• Americans are shifting their rage from Wall Street and the credit card industry to their own banks. Why? Because in an effort to protect their margins, U.S. banks and credit unions have boosted overdraft fees a brutal 35 percent since 2007.

• An October 2009 study by the Center for Responsible Lending found that financial institutions brought in $24 billion in overdraft fees in 2008, a huge source of revenue that effectively profits from consumer pain.

• Banks argue that overdraft services prevent customers from being denied at the cash register when they don’t have enough funds to cover a purchase. But consumer advocates say the poor and the young pay a disproportionate amount of overdrafts, and banks should be required to get consumer approval for the practice.

What This Means to Business

• A major fight is brewing, and consumers have the momentum due to big wins such as the Credit CARD Act of 2009. Congress may well create new regulations to limit overdraft practices.

• The largest U.S. banks are proactively revising their overdraft policies and practices to be more consumer friendly. But a sea change is coming, and banks need to recast themselves as truly looking after the interests of their customers.

Comments

[Minnie]

Banks make most of their money from the overdraft fees generated by customers that cannot keep track of their money. They will stop offering free accounts and will charge other fees to make up for it if legislation is passed.

What's so difficult about keeping track of how much you have? This is the example I give customers all the time: You have $100 in your checking account (nothing pending). You use your card at Walgreens for $10, Gas $30, Burger King $10. You have to immediately subtract these transactions from the $100 that you have in the bank. You now have $50 available, even though your account shows you have the full $100. Merchants take their time in actually going into the bank and taking their money. We have no control over how long it takes them to come in and take their money.

It is not the banks responsibility to keep track of your money. If you call the bank after the prior example and you are told you have $100, you CANNOT go and spend that $100 because you know that you have to deduct the $50 that you spent that day. You many not see that $50 deduction taken from your account for 2 or more days but you can no longer count on that money.

Keep a small notebook with you or record the transactions in your cell phone at all times so that you don't lose track.

The only thing that I have linked to my account is my direct deposti. I don't have any automatic payments taken from my account because I know that companies don't always withdraw their payments on the day that they are supposed to and they sometimes mess up on the amount. I pay all my bills with my bank's Bill Pay and I control when the payment is sent.

It really is simple.

Sorry for the long post but I get calls like this daily screaming at me because the purchase at Walgreens was 4 days ago and it just now got deducted from their account and overdrew the account because the customer kept spending money. It's not the bank's fault.