House Subcommittee Taking A Look At Unfair Overdraft Fees

US PIRG blog tells us, “Chairwoman Carolyn Maloney (D-NY) of the House Subcommittee on Financial Institutions and Consumer Credit is holding a hearing today on unfair bank overdraft fees and their impact on consumers, especially in regard to debit card transactions.” Chairwoman Maloney has introduced a bill that addresses overly-punitive fees that are often assessed when a consumer buys a small amount on a debit card. As US PIRG points out, “It’s much easier to overdraw your (debit) account. A debit card gives you a latte if you have no money. A latte costs $5 but the bank gets a $30 overdraft.”

Bank are also accused of gaming the system to increase the “whoops, I bought a latte” fees that can be assessed against their customers—by manipulating the order or time frame in which checks are posted to the customer’s account.

You can read the proposed legislation by clicking here.

Bounce protection loans/debit cards under committee microscope [US PIRG]
(Photo:Scarequotes)

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  1. STITCHES says:

    Some of these overdraft fees are pretty ridiculous. My card was used fraudulently when I was out of town and was in the red $0.99 and Chase charged me a $50 overdraft fee, yes $50. Luckily though it was returned to me.

  2. enm4r says:

    The amount you overdraft by should make absolutely no difference. The fee is because you went over, not because you went over by $200. Instead of caring about how much people are going over, perhaps they should look at order of transactions in attempt to create more overdrafts.

    Being that it’s just an electronic transfer, and there really isn’t much processing/handling time due to debit overdrafts, I find it amusing that banks still justify the same overdraft fees they would for paper checks.

    That said, overdraft protection is available many places at no costs for those “oops I bought a $5 latte that I didn’t even need” moments. Or you could, you know, just not spend more money than you have. Novel concept, I know!

  3. MonkeySwitch says:

    Compass bank hast he most absurd overdraft policy. If you over draft, it’s $35. You have one week to get the money in the bank, and then it’s another $35. After that it is $6 a day. Every day. I paid $80 something dollars in overdraft fees for a $4 over charge. The bank teller didn’t tell me that I had a remaining negative balance. I left the bank, tore up my debit card, and never went back. What I didn’t realise was that I forgot to factor in an additional $6 charge. So AFTER I paid almost a hundred dollars, aa few months later I got a statement saying that I owed Compass Bank $176!!!!! Made up of nothing but $6 fees!!!! Sure it was “my fault” for not making sure that I had paid off the debt, but anyone has to admit that over $200 for a $4 overdraft is absolutely bonkers. I never paid the remaining one hundred some odd dollars, and I don’t plan to. This is probably going to bite me in the butt in the long run, but I just can’t see myself paying that.

  4. hoot550 says:

    It is not always about spending more than you have. Once, before I learned the evils of automatic withdrawals, my insurance company screwed up and took out two payments at once. It took them a few of days to get it back in the account and in that time the checks that were out there started bouncing.

    Insurance company says basically “that’s the way it goes, too bad, should have more money in your account, I guess.” The bank says basically “you said it was okay for them to debit your account, so we can’t really help you.”

    Long story short, in the end, the bank agreed to refund the overdraft fees and make it right. But this is typical – a big company screws up, says “oops” and then you have to clean up the mess. Even though you did nothing wrong, you have to spend hours cleaning up their mess.

    That was the last time I ever allowed anyone to take money out of my account automatically. Which also sucks because the trend now is to charge you to receive a bill.

  5. AaronGNP says:

    I don’t know if other banks do this, but my bank has another ridiculous scheme for soaking the OD fees from you. Imagine this:

    You have $20 in your account. You make a $10 purchase through your Visa debit card (signature transaction, not PIN based), and then write a $15 check. The bank immediately places a hold on that $10 POS tran (because they know it will come through in a few days, since they authorized it), and if that check clears before the POS tran posts, the check will be assessed an overdraft fee, since the $10 from the POS tran is being held. Then when the POS tran finally posts, they release the $10 hold, and since your account is negative when the POS tran actually posts, they then assess another overdraft fee, essentially gaining two overdraft fees when only one of them would have caused the account to go negative.

    However, this scenario is only possible if you make both POS transactions and issue checks, as two checks will just cause one to be assessed a fee, and the 2nd of the POS trans will get declined due to NSF.

    NO logic.

    AGNP

  6. obbie says:

    about time, i am sick of the ridiculousness of a delayed deposit or transactions taking a week to hit. it totally throws you off of how much you have.

  7. a_m_m_b says:

    @AaronGNP: don’t float checks when using your debit card regardless of signing or pin-ing. it’s illegal & leads to exactly the kinds OD fees being assessed.

    also, since Check21 playing the float is even more a fool’s game than before. any paper check written may now be electronically processed & plenty of merchants are doing so.

    that being said, banks which deliberately arrange for the hierarchy & timing of transaction processing to maximize the odds of fees are unethical as hell. always check with the bank about this & save yourself the headaches.

  8. avantartist says:

    “…manipulating the order or time frame in which checks are posted to the customer’s account”

    i swear my bank does this any time i’ve overdrawn. i love how when times are tight for people they really like to ding you good. i don’t see why they cant just deny a transaction if the funds are unavailable.

  9. DjDynasty says:

    I’ve been blunt with my banks about over draft fee’s. I have Bank of America, and have continued to gripe about them on a regular basis and not ever been expected to adhere to them. Then again, I have a $100,000 Mortage, and 2 cars financed with Bank of America, as well as the only credit card I carry a monthly balance with IS Bank of America, they make plenty of money on me, so throwing me the OD fee’s back they have no problem with. Esp since most of the OD’s are them double debiting my car payment, or something else!

    Even the $10 “Sweep” fee for them transferring funds is a bit excessive.

  10. Snockered says:

    A few months ago I overdrew my Citizens checking account by about $20. The next day I went and deposited enough cash so there was a $20 balance. The day after that I looked and I was in the red again. The bank had charged a $35 overdraft fee which sent my balance back below zero–so they hit me with a second one. They refused to refund the second fee until I explained (for the fifth time) that had I not deposited that money, I would have owed a total of $55 but because I put in $40, I ended up owing $90. Ridiculous.

  11. bohemian says:

    Our bank changed their policies without notifying anyone. They came up with all sorts of ways of creating overdrafts in scenarios where the transaction used to decline. They also raised their overdraft fee the same day.

    We went to using online bill pay and ATM cash. Now the bank has suddenly decided to do online bill pay as batches at the end of the day so they don’t immediately come out of your account like they used to. I am sure they have some way of using this to create OD charges too. When I called the bank they acted quite knocked on their heels that someone noticed the difference between an immediate debit and one holding to be processed.

  12. JustAGuy2 says:

    Why are people paying for things with debit cards? Pay with credit cards, for god’s sake. You hold onto your money for a longer period of time (so you earn the interest), you don’t get whacked for huge overdraft fees, and if you do screw up and charge too much, you pay cc interest, which is far lower than the overdraft fees.

  13. Maurik says:

    Justaguy2 –

    People pay by debit card (I do this – ) as it allows them to be in more control of their finances. When you pay by debit card, it’s usually taken out of your account quickly after, so you can always be up-to-date with how much money you have to spend, going overdrawn is something that shouldn’t happen anyway!

    Maurik.

  14. Chicago7 says:

    The overdraft charge at TCF bank is $63.

  15. informer says:

    This is why I hate debit cards and refuse to use them. If something goes wrong with your debit card (whether it’s your fault or not), you are basically screwed until you can get it cleared up and, “whoops!” all of the sudden your rent check has bounced! With a credit card, you at least have a month to get things fixed, and it’s the bank’s money that is in limbo, not yours. Not to mention the fact that the federal laws protecting credit card users are a lot stronger than those that apply to debit cards.

  16. DanGross says:

    My mother was once accidentally charged twice on a purchase when she used her bank card to pay. The second charge overdrew her account. The store had noticed that they had accidentally double-charged and immediately posted a credit. Too late, she dipped into overdraft territory, she got whacked with an over-charge fee. Her attempts to talk with the bank’s customer service were met with “not our problem, take it up with the store. There’s no way you’ll pry the overdraft charge from our hands.” This was not a large bank but one of those “friendly, neighborhood banks.” They are named “Five Star Bank,” but since my mom told me about this I’ve been calling them “One Star Bank.”

  17. mac-phisto says:

    @a_m_m_b: i believe the point he was trying to make is that he is essentially being charged 2 fees for 1 transaction. absent of everything else, that seems like a pretty bullshit concept.

    @informer: the laws are the same: UCC, Reg E, EFT ACT, etc. – banks are banks are banks whether they’re extending you credit or debiting your deposit account.

  18. bangoskank says:

    Ah yes, the $30 latte.

    Once in college I paid $48 for a Subway sandwich. 6-in sub: $3. CheckMate fee: $15. Bank overdraft: $30. Weeks of embarassment: Priceless.

  19. acambras says:

    @JustAGuy2:

    you don’t get whacked for huge overdraft fees [with credit cards]

    Careful, though. A lot of cc companies are now imposing “over limit” fees. This happened to me when I didn’t keep close enough tabs on my Chase card. Instead of declining the charge that would have put me over my limit, they allowed it and then smacked me with a $39 over-limit charge. My fault for not keeping tabs on my balance, but I wish they’d just declined the transaction (but of course honoring it and hitting me with the fee was more lucrative for them). :-(

    I’ve noticed that some cards’ websites now offer to send you an automatically-generated e-mail when you’re within a certain amount of your credit limit.

  20. no.no.notorious says:

    i don’t think they should eliminate the overdraft fee, but i do think it should be modified. i think there should be a penalty if you’re in the red for a certain period of time, to allow come leeway for deposits to clear and what not (if you’re in the red for more than 4 days and you’ve made no deposit, thats just foolish). i also think they shouldn’t charge a fee if you deposit a check that bounces. that just doesn’t make any sense. of course, the one that writes the check should pay a penalty. the end.

  21. Steel_Pelican says:

    We can argue the virtues of credit vs. debit vs. cash all day- the fact is that different systems work for different people, and that’s fine. If you’re lucky enough to not live paycheck-to-paycheck, it’s easy for you to say “well, just don’t overdraft, dummy!” but for those of us who aren’t that established yet, it’s often not an option.

    It’s clear, though, that banks’ overdraft policies are predatory, and designed to take advantage of customers when they are in bad financial straits, and to keep customers in bad financial straits.

    I like my ING Electric Orange debit account, which instead of charging overdraft fees, simply charges me an interest rate on my overdrawn amount. I feel that this is the fairest overdraft policy that I’ve encountered.

  22. Geekybiker says:

    I just remember dealing with bank one and having overdraft fees. I used my debit card to buy some stuff and then about a week later I checked my balance and made some other purchases. Immediately both post and I was charged an overdraft. Was it stupid of me not to track my own balance, and rely on the bank? Probably yes. But I dont think it was unreasonable to expect an electronic transaction to have posted within a couple of days. I’m speculating that Bank one holds transactions as long as legally possible in order to post them when they will cause an overdraft.

  23. informer says:

    @MAC-PHISTO: The laws are certainly NOT the same. To quote the Federal Reserve:

    “It’s important to be aware of the potential risk in using an EFT card, which differs from the risk on a credit card.

    On lost or stolen credit cards, your loss is limited to $50 per card (see Lost or Stolen Credit Cards). On an EFT card, your liability for an unauthorized withdrawal can vary: Your loss is limited to $50 if you notify the financial institution within two business days after learning of loss or theft of your card or code.

    But you could lose as much as $500 if you do not tell the card issuer within two business days after learning of loss or theft.

    If you do not report an unauthorized transfer that appears on your statement within 60 days after the statement is mailed to you, you risk unlimited loss on transfers made after the 60-day period. That means you could lose all the money in your account plus your maximum overdraft line of credit, if any.”

  24. mac-phisto says:

    @informer: except that VISA’s zero-liability policy supersedes federal regulation on any VISA or MasterCard branded card, which comprises the bulk of the market (keep in mind that zero-liability is not provided for PIN transactions). you can read about that here:

    [usa.visa.com]

    so, unless you’re the type of super-savvy consumer that writes your PIN on your card w/ a sharpie, carries it in your wallet w/ your card, or uses easy to figure out numbers like your birthday (all of which your bank tells you are BIG no-no’s), you’re covered 100%.

    there are also other federal regulations at play here besides EFT ACT (& the UCC, which defines the “reasonable time” requirements). despite what appears on the ftc site, federal regulators have been interpreting the safeguards rule of the GBLA & certain elements of title I of FACTA to extend full protection to customers that are victims of ID theft. while this interpretation is not expressly stated, the legislation provides stiff fines & incarceration for bank officials that do not aid a customer who is a victim of ID theft. the language of the bill is vague enough that it allows regulatory discretion as to what qualifies as aiding a customer.

    regulators are expecting financial institutions to reimburse stolen funds in addition to any fees originating from the theft within 48 hours of being notified of an unauthorized withdrawal. the standard practice is to provide “provisional credit” during the investigative process. once the investigation is complete, part or all of this credit could only be revoked if it is determined that the customer was somehow culpable of the loss.

  25. informer says:

    @mac-phisto: Thanks for the info. I’m glad to hear more consumer friendly regulations are being implemented, but I’ll still remain wary of debit cards for now.

  26. Phrugal says:

    Consumerist has become my favorite site. I have been trying to get my bank to refund a bunch of overdrafts and they flatly denied me. Then I saw this post, and replied to my bank citing the legislation and they quickly credited me over $100.