If you perform an ATM or debit card transaction that results in your account being overdrafted, many banks will now simply authorize the transaction and slap you with an overdraft fee. A new bill, HR946, would “require banks to give consumers a chance to back out of transactions that might cause them to overdraw their checking accounts,” according to the Kansas City Star.
A study by the Center for Responsible Lending found that the hardest hit by overdraft fees are consumers between ages 18 and 24, and that banks use “abusive overdraft loans to collect nearly $1 billion per year in fees from young adults who earn relatively little as students or new members of the workforce.”
Bank officials have countered with some really amusing defenses:
- This is our way of saving a customer from the embarrassment of a declined transaction.
- Overdraft fees teach young people financial literacy.
- It’s up to the customer to keep track of this information.
Okay, we can’t really argue with that last one—but it would be nice if your bank helped you keep track of such data, and warned customers of exceptions instead of setting up a system to profit from them.
“Overdraft fees prompt action in Congress” [Kansas City Star]
(Photo: Getty)
More From Consumerist
-
California Lawmakers Move Forward With Homeowner Bill of Rights
-
If The Bank Hands You A Counterfeit Bill, You're Probably Stuck With It
-
New Legislation Seeks To Rein In Overdraft Fees
-
USPS Reaches The Limit Of $15 Billion Borrowed From Treasury, Is All Like, “Now What?”
-
Comcast, Where Your Auto Pay Is Simultaneously On And Off
@mac-phisto: Uhh, I tried that and they wont do it (see my earlier post).
Basically, there are two situations we are encountering:
1. No overdraft protection (i.e. a special line of credit or a linked savings account) – the bank, at their discretion, will still honor transactions that overdraft your account, with a hefty penalty. This is where most people fall right now.
2. Those of us with credit cards linked to our checking account (I had this for a while) – its really bogus. They will guarantee to honor every transaction, but STILL charge you overdraft fees and any interest on your credit card as a result of the overdraft!
For many of us, we just want a straight up bounce or decline of any over drawing transactions. The banks just refuse to do it.
I called Wells Fargo and Comerica (my banks) and neither one is willing to do what I want and think I’m some sort of weird space alien to request such a thing.
Why is it such a big deal that the banks make money off overdraft fee’s? Again, if you don’t like banks and overdraft fee’s, use cash.
Why is it such a big deal to deny transactions that overdraft our accounts? You’re like the pushy salesman who criticizes and harasses someone for not buying something.
What I’m saying is I don’t feel like this is something that should be legislated. The government should not be getting involved. This is not a practice that ALL banks are involved in. If you fear overdrafts, go to a bank that lets you opt out. The more of this that occurs, legislating private business, the closer we get to a police state where EVERYTHING is legislated and controlled by the government. No one is forcing you to stay at a bank that won’t let you opt out. If you don’t like your banks policies, CHANGE BANKS. Don’t expect the legislature to step in and protect you from the big bad bankers.
@bradg33: It’s a big deal because they have realigned their practices to maximize your chance of overdrawing your account, and to charge you as much as possible for each overdraft. It’s not the fees that are the issue, it’s the way the banks stack the deck against you.
Please, can the libertarian fanaticism. Making a reasonable law that lets consumers decide (note that consumers do not lose their choice in the matter) whether they want overdraft privileges or not does not create a police state.
Now, can recommend a good list of banks/credit unions that meet my criteria?
@bradg33: So Equal Opportunity Lending, the FDIC, and the FDCPA should go out the window? How about the SEC?
Or the laws that state what a bank has to disclose when you open an account? You seem awfully fond of bank disclosures- which are government mandated. Those arose from some banks using unfair and predatory tactics, and the government had to step in to protect consumers. Damn police state.
@Darren666: So not only do you want the government and banks to baby sit your money, you want me to do research for you?
@bradg33: Once upon a time, those fees were to cover the banks’ expenses in processing the overdraft. Today, they are seen as an avenue of profit, and suddenly banks feel a need to “hold” deposits and other shenanigans that increase the likelihood of collecting these profits.
Unfortunately it’s a choice between the so-called govenment “police state” and private corporations (which given the chance and opportunity would be just as ruthless as any government police state if it means maximizing their profits). Consumers are just unfortunately caught in the middle.
I do agree thought that the ability to opt out of mandatory overdrafts isn’t hurting anyone.
@Shred: Don’t be siolly. I’m sure Ben hasn’t got any problem wioth readers expressing their disagreement on occasion. This does say “post a comment,” not “agree with Ben here.”
@bradg33: “if you don’t like banks and overdraft fee’s, use cash.”
It’s a wee bit difficult to do that when you need to pay the electric bill since you can’t send any cash through the mail.
@bradg33: Yes. And while you’re at it, I want a pony.
So how do you all recommend that Gas stations handle this? Particularly the ones that only authorize $.01 to the card before dispensing gas. How would that work if you opt out of overdrafts?
@Shred: Now it wouldn’t be any fun around here if everyone agreed on everything now would it?
I think that’s “overdrawn” Consumerist!
But anyways, this is why I’m glad I have a credit union. If I try to use my debit card and I don’t have enough money, my card is declined so it’s not possible for me to bounce a transaction.
@drjayphd: Unfortunately I’m prohibited from transacting in pony’s. After my last pony over drafting incident, the FFA banned me from the Pony Trade Association.
@bradg33: How is what we are proposing any form of baby sitting?
@bradg33: If the gas stations let people pump more gas than they have money, then thats their problem.
@Sully111:
Oh my gosh, I had totally forgetten about “insufficient funds” – I have not seen those words at an ATM since college.
I’m all for individual responsibility, but these days the stacks are against the average bank customer. Ever since Congress passed that law that reworked how deposits, checks, etc. are processed by banks. The rules should be the same for banks, customers, and companies. If you write a check to DirecTv and the bank clears that check electronically in 3 days, why does it hold bank checks (payroll, etc.) for many more days. If the banks can process the DirecTv check in 2 days they can process the payroll check in the same 2 days. The reason they hold the check you deposit is not to make sure the other bank has the money its to earn interest off your money why they hold it.
The “personal responsibility” crowd cracks me up. When you get screwed by making a simple mistake, do you feel like you deserved it? If so, perhaps you need to work on your self-esteem. I, however, don’t feel that I deserved to pay $105 in overdraft fees on transactions totalling $45 because I didn’t read the fine print when I opened my account to understand how transactions would be counterintuitively processed by MegaGiantBank N.A. Call me an irresponsible whiner, but the punishment didn’t fit the crime.
As far as it being up to the consumer to keep track of the information, I agree. However it doesn’t really help when you get hit with a fee of 1.50 for checking your balance at a bank owned ATM. Chase does this which is why I always check online or over the phone.
@mondomondoman: Perhaps you should change banks if you don’t like their policies/fees. And if you failed to read the fine print, thats your fault and you deserve the consequences.
This a much bigger deal than what the Banking apologists will concede, for this reason among many others;
1.)Staggered clearance of posted transactions. This is when your bank clears transactions in order of amount, from highest to lowest. The reasoning is that the highest transaction is most likely to NSF your account. So your flat screen tv purchase clears, but the rest after that are most likely to bounce. Your gas, meals, gum. NSF, NSF, NSF.
The banking industry has a term for people who manage their accounts responsibly, and incur no fees. STIFF.
The term used for people who don’t pay their bills is DEADBEATS.
@Darren666: well, i think you have two options:
1) cut up the debit card (i have an account that has NO card for specifically this reason – can’t afford to bounce my mortgage).
2) talk to a bank manager & threaten to close your account. make sure you’ve found a bank that will honor your request & follow thru if they don’t agree to the ultimatum. i know individuals who have had success at bank of america, wachovia & a few region banks “turning off” overdraft. it is possible, you just need to find someone to do it.
personally, i like ing’s electric orange b/c they’ll let you overdraft, but only charge you interest at 12% APR. if you make a little mistake & transfer money to cover it, it costs you a couple pennies. even carrying a $100 “mistake” over a month only costs $1. best of both worlds – room for error w/o the hefty cost.
I had a roommate whose bank showed the overdraft protection amount as available balance. He didn’t realize this until they called him that his account was overdrawn $800 after a trip out of state. Luckily, they didn’t charge him interest while working out the payment plan.
@Beerad: “There’s plenty of horror stories (as Consumerist readers well know) about people who have received incorrect information from the bank about account balances…”
Yup, and equally plenty of horror stories (as Consumerist readers well know) about people who have incorrectly interpreted information from the bank about their account balances (posted vs available vs collected).
If your bank offers courtesy over-draft, then OPT-OUT in writing. A phone call probably wont be sufficient….
A disclosure is a terrible thing to waste (even if one doesn’t ethically or morally agree with its’ terms).
@SadSam: “If you write a check to DirecTv and the bank clears that check electronically in 3 days, why does it hold bank checks (payroll, etc.) for many more days.”
You’re trying to equate a debit transaction (the check your write) with a credit transaction (A check you deposit). Two different transactions not equal in scope.
Deposits are governed by the Federal Laws of Deposit and Collection, which your bank may call something like a “Funds Availability Disclosure”. These regs apply EQUALLY to the merchant you wrote the check out to on their deposit.
As for payroll, nothing still beats direct-deposit. If your employer does not offer it, maybe its time you started lobbying your Personnel rep at the office to move into the 1990′s at least….