"Courtesy Overdraft Fees" Are Bad For Consumers

Bankrate has an extensive article on “courtesy overdraft” services tied to debit cards. These services prevent your debit card transactions from being denied, but have the unpleasant effect of charging you anywhere from $20-$35 for this “courtesy.”

From Bankrate:

Common sense would dictate that if you’re trying to take out more money than is in your account, the ATM or point-of-sale authorization system should either refuse the withdrawal, just as it would with a credit card, or let you know that you’ll be overdrawn and you’ll incur a fee; but that’s not what’s happening.

What’s also troubling is that most bank customers are automatically enrolled in courtesy overdraft programs without their knowledge. Banks aren’t required to send a notice to the customer that they’re enrolled in the program unless the bank chooses to promote the program, and most don’t. Consumer advocates say these programs are nothing more than high-interest, short-term loans foisted upon unsuspecting customers.

Bankrate says that you should be able to opt-out of courtesy overdraft programs by simply calling your bank and asking. If they say it’s not possible, you should escalate your complaint to someone higher on the food chain.

Have you opted-out of your overdraft program? Why? Why not?

Courtesy overdraft: bad for customers [Bankrate]
(Photo:tiangotlost)

Comments

Edit Your Comment

  1. mantari says:

    I’m not sure how a bank regularly works, but at my credit union, I have an open line of credit for just such a situation.

    Should I overdraw my checking account, the credit union automatically transfers the needed $$ from the available line of credit (14% annual interest rate), and an additional $1 service charge.

    So very nice. Credit unions!

  2. sleze69 says:

    I don’t know if I have overdraft. I haven’t used my bank card as a check card in about 4 years. I use it only for the rare cash withdraw from an ATM. All my purchases are made with my Amex and my (soon to be destroyed)Mastercard.

  3. Shappie says:

    @mantari: I have the same thing. Its wonderful and I have never had an overdraft fee in the history of me having that account, about 10 years.

  4. Copper says:

    Bank of America charges $35 for every transaction in the red. USAA just declines my card. I like USAA much better.

  5. ceriphim says:

    This is the biggest scam outside of the insuance industry. When I was younger I had problems a few times with overdrafts and I can say with 100% accuracy that they never once asked me if I would like to decline the “courtesy program”.

  6. sven.kirk says:

    Um. How about having personal responsibility and knowing what is in your account BEFORE you spend it. Know your CU/banks overdraft policy. And don’t play beat the bank. Works for me.

    If you want to opt-out and they will not let you. Leave. Go to another bank.

    @ceriphim: You have to ask to decline the courtesy program. If you are bouncing checks off of them and giving you the fees, why would they want to stop charging you?

  7. JessiesMind says:

    I just make sure I don’t even get close to overdrafting the account. Problem solved.

    I have heard a few people say that they’d rather deal with the high overdraft fees than the embarrassment of hearing “I’m sorry, your card has been declined.”

  8. stacy75 says:

    I’ve asked B of A to cancel their $35 ‘courtesy overdraft program’, on my account but I was told it’s impossible. I’ve noted my disgust for B of A before here.

  9. mysticone says:

    My credit union charges $27.50 per overdraft. Even if you went over a penny, it’s $27.50. I’m working on switching all of my stuff to my ING Direct Electric Orange account, where they simply charge you interest on the negative balance. So far, in the times I’ve had overdrafts or simply used my line of credit in between getting money into the account, I’ve paid maybe $0.20 in interest. $0.20 vs $27.50? No contest there.

  10. ExVee says:

    @sven.kirk: I totally agree with the point you’re after. But I also have to confess that I’ve in the past neglected this very wisdom. The end result was taking $70 in these “courtesy” fees for purchases totalling about $9. Yep, I should have been better aware of my low balance, and that was my mistake. But in the end I didn’t have to pay for it.

    My bank is relatively awesome in customer service, so when I called to get opted out of this feature I didn’t know I had (making that bit clear to the CSR), she went the extra step and refunded those fees back into my account. My bank is not immediately local to me anymore, but service such as that reminds me why I keep with them despite considerable inconvenience. So, I come out of the situation a little wsier, more cautious, and to the last I knew, free of this incredibly inconvenient convenience.

    True story.

  11. jamesfischer says:

    They call it a “debit card”, but is it a debit card
    or is it a credit card?

    If they loan you money to make a purchase, it is
    a credit card. They need to disclose rates and
    other specific items and get your acknowledgment
    of the disclosure under Regulation Z, or they
    face a number of “compliance issues”.

    If you try to withdraw cash from an ATM, the
    ATM will say “insufficient funds”, but if asked
    about your balance by a merchant’s debit card
    terminal, the bank deliberately create an overdraft
    that otherwise would not exist through the simple
    means of engaging in what can only be called “wire fraud”.

    So, for an $8.00 non-critical purchase, you are
    charged a fee (interest!) when the interest rate
    was never disclosed. Your $8.00 purchase costs
    $38.00.

    Call the bank’s HQ, ask to speak to a “compliance officer”, and explain that you would rather not
    drag the bank into small claims court over Regulation
    Z violations, and would prefer to have what you
    were sold – a simple debit card, one that is not
    a “credit card”, and one that does not “protect”
    you with rates that even payday-advance slime and loansharks would balk at charging. You will get
    your wish very quickly, with all fees refunded,
    as the mere fact that you know the term
    “compliance officer” will tip them off that you
    also know some banking law, and “Regulation Z”
    is not something they want to even seem to
    violate, as it impacts their lucrative credit
    card business.

    New law is not needed here. What is needed is
    simple enforcement of the existing law, in this
    case the law that requires disclosure of credit
    terms to consumers and the overt agreement of
    the consumer to a credit arrangement, “Regulation Z”.

    The proof of the deliberate nature of the fraud is
    the contrast between ATM refusals (and this would
    include any ATM, even an “out-of-network” ATM) and
    merchant terminal “approvals”. They tell ATMs
    the truth, and lie to Point-Of-Sale terminals.

    Both machines ask the same question – “Is the
    balance sufficient to withdraw “X” dollars?”

  12. lucidpsyche says:

    I dealt with this with Wells Fargo a few years ago. I had to enroll in the “overdraft protection” — it charges $10 per transaction. It doesn’t notify me when I make a purchase, but I did discover that if I try to withdraw money out of the account from an ATM, the ATM will notify me.

  13. RvLeshrac says:

    I would *ONLY* not mind these if I could choose exactly which companies could overdraft.

    Overdraft on my car insurance? Yesplz. Overdraft on a $5 sandwich at McDonalds? Screw you.

  14. BigBoat says:

    Fees bad, water wet.

  15. galatae says:

    These fees are what payday lending companies use to justify their fees to congress. If you’re bank is going to charge you $20-$30 for overdraft protection on a $2 overdraft, a $15 fee on $100 doesn’t seem so bad.

    Symptom of a bigger problem.

  16. avantartist says:

    @sven.kirk: “How about having personal responsibility and knowing what is in your account BEFORE you spend it.”

    Yes… well of course it’s everyone’s responsibility to monitor their account balance, though i imagine almost everyone at one point in their life may make at least one banking error.

    one time i had a sizable check bounce [a check given to me not that i wrote]. The bank had cleared the funds for at least 30 days before withdrawing them from my account without notification [actually they did find the kindness in their hearts to send me a letter in the mail after the funds were removed]. I use my debit card for everything so after the 7 days it took for me to receive the letter i’d racked up over $500 in courtesy fees. Nothing like a $40 cup of coffee (ahhh).

    I never knew you could opt-out of courtesy overdraft programs. I think people should should have to opt-in.

    I have a line of credit just in case.

  17. SJActress says:

    Yeah, this was my bank’s (Wells Sucko) excuse: “It’s a courtesy so you’re not embarrassed by being declined.” You know what’s a lot more embarrassing? Not being able to pay your rent because of this “courtesy”.

    By the way, the first overdraft fee was a mistake on THEIR part (I had money), which caused SEVEN more overdraft fees (bought several small things that day). How long do you think it took for me to convince them that they are idiots?

  18. bigat says:

    There was a report awhile back about this. It stated that banks made billions, because of fees.

    Oh, and for those who say “why can’t people live with in your budget”.. Most people are not perfect or are not accountants. You try making 30,000 – 40,000 and not make any mistakes in living on your own.

  19. HawkWolf says:

    overdrafting is bad. however, everyone makes mistakes. I like how my CU does it; I don’t really have a line of credit for it, but I do have a savings account linked with my checking. If I overdraft, it dings the savings. I think there’s a fee, but it’s not 35 dollars.

    I’ve overdrafted exactly once. I slipped and forgot to look at my account, and I was really short on money at the time. I would have just used my credit card (it was my weekly groceries), but I wasn’t thinking.

    I’m not a bad person because of this. If my ATM card had been refused, I would have gone huh, and used my credit card and figured it out at home.

  20. Like Misticone I just switched to INGdirect electric orange for this very reason; not to mention all the other ridiculous bank fees that seem to multiply every year like Spears babies. ING = no fees and to paraphrase bigboat – no fees = good.

  21. marzak says:

    for those that use BofA, to get around the $35($41 last i got hit) “courtesy fee”, open a savings account with them. they charge you $10 and pull what they can from the savings account. i had a $130 charge(insurance payment) go through with about $20 in checking and about $15 in savings and while i yes went negative, i only got hit for $10, and my savings (if you could call $15 savings) wiped out. i can accept that.

  22. madanthony says:

    I know a fair number of people on this site tend to be anti-credit-card, but one advantage of using credit cards over debit cards is that you don’t have to worry about this.

    I understand that some people don’t “trust themselves” with credit cards and worry they will get into additional debt, and can understand why they avoid them. But for most people, I think the advantages – grace period, additional fraud protection, rewards, and not having to worry about overdrafts – give credit cards an advantage over debit cards.

  23. teapartys_over says:

    I don’t use a debit card, and I don’t allow my bank to issue me a cash card with debit capabilities. I don’t like the ease with which money can be withdrawn from my account if the card is stolen. There’s a big difference between disputing a purchase on your credit card and then not paying it, and trying to get your money back into your account AFTER it has been taken out. And the regulations governing debit card fraud are different, you aren’t as protected as with credit cards. I don’t understand the big deal in using a credit card as long as you pay it at the end of the month. Then you pay a lot of things at once, no surprises. And you can get miles, or points. And you are less likely to run into a surprise overdraft.

  24. Colin says:

    I remember a few years back when I made 7 very small purchased on my Wachovia debit card in the span of a day. Each one cost me $39. My $30 or $40 worth of merchandise ended up costing nearly $300. I called to whine and if I recall they removed ONE of the charges. Gee, thanks. I later did some research and had them turn off this “courtesy” feature.

    Of course, now, I just manage my money better and never overdraft!

  25. morganlh85 says:

    Luckily my wonderful credit union does this for us automatically. If I try to use my debit card and don’t have enough money, it will just deny the card like a credit card, which is great for someone like me who never gets around to balancing a checkbook.

  26. tape says:

    my credit union will only do this sort of “courtesy” if you have a pending deposit that has not yet been made “available”. so if you deposit a check, the funds can actually be used even though they’re not yet “available”. they charge a dollar or two for this, and that’s not really so bad. it usually only happens when I forget about something. they will not overdraft if you do not have known money coming in, which I like.

  27. SpdRacer says:

    @sven.kirk: I usually do know what’s in my account, but the CU I belong to insists on charging $1 for PIN based transactions. According to them, the system can’t tell if I use my PIN for the transaction or not until it is processed. So, long story short whenever I use my check card it automatically holds a dollar so the CU gets theirs, and this has caused me to be overdrawn by as little as a penny and incur the overdraft fee. I usually just call and complain till they give me my money back.

  28. SpdRacer says:

    @SJActress: Had that happenbefore, stupid computers.

  29. SpdRacer says:

    @SpdRacer: I’m sorry “Courtesy Overdraft Protection”.

  30. Dr.Ph0bius says:

    This isnt much different from an overdraft fee with a check. You can write a check that you cant cover and get a similar fee… Im not seeing the difference in using your check card when you dont have the money and getting the fee. The bewst idea would be to keep track of your finances and not to spendmoney you dont have… by check or by check card.

  31. emilymarion333 says:

    I made a little mistake this month and forgot about my car payment which has an automatic withdrawal from my BofA account. Well I have not had an overdraft fee in years but I was hit with 7 overdraft fees in the amount of $245 due to that. My favorite thing is how they run the expensive then first and then let me smaller $10 or so purchases go through so they can hit with with as many overdrafts as possible. I know it was my mistake but I am still a little upset. I never overdraw my account and this is a first in many years.

  32. bigat says:

    @Dr.Ph0bius: Sure thing Doc..
    Because it’s so easy keeping track of every penny you spend. Not to mention you probably make $100,000+ grand. I think most people can live within your budget at 100g’s a year and not have one overdraft. Thing is if you can average a daily balance of lets say $200 daily you will probably not have any overdrafts. You try it at 40,000 and see where you end up at.

  33. sven.kirk says:

    @SpdRacer: My CU tells me PIN based transactions are same as ATM withdrawals. Mine PIN purchases shows up virtually instantly. The signature purchases depends. Most same day, some $1 holds, some 2-3 days later.

    @teapartys_over: Just don’t use your PIN. That is what I do.

    @bigat:
    Most people are not perfect or are not accountants. Never said I was perfect. Bounced 1 check before. I still have that canceled check on my monitor to remind myself “never again”. Its been 5 years since then.
    You try making 30,000 – 40,000 and not make any mistakes in living on your own.What does the amount of income have to do with any of this.

  34. mistaketv says:

    Wow, four whole comments were made before the first blame-the-victim/personal responsibility post. Way to go.

  35. vastrightwing says:

    Banks are EVIL. Credit cards are worse. I’ve experienced this problem and now I spend more time “managing” my money. Fortunately my bank has email alerts and I use them to make sure I don’t forget to pay attention to my account at all times. It stinks, but this is how I’m TRYING to avoid this situation again.

  36. Adam Rock says:

    I tried to opt out, talking to a teller in person after I racked up more than $50 in retarded overdraft fees. Why didn’t it just reject it?

    I was told by the teller that I would be refused AND charged a fee REGARDLESS if I had the “overdraft protection” or not. WTF?

    What a bunch of crap. I keep my eye on what I have in my accounts now, so I suppose that’s good.

    (Wells Fargo)

  37. Blueoysterjoe says:

    I am convinced that the only economic growth our country makes anymore is scam growth. Dot com bubbles, housing bubbles, Enron, bad loans, “courtesy” fines, etc. Is any of our economic growth real?

  38. obfusciatrist says:

    I know about them but haven’t asked to opt out because I don’t really run much risk of overdrawing unless some kind of rare chain of events happens and then I don’t mind the coverage, even if it is exorbitant. But then, I’m at a point in life where paying $15 to avoid the hassle of a declined card every few years isn’t that big of a deal.

    There’s nothing a bank likes better than a person who regularly overdraws their accounts but then covers the fees.

  39. obfusciatrist says:

    Well, now here’s a coincidence. I logged into my WaMu.com account to see if there was any disclosure of this service. In the message center (which I never actually look at) is a general informational message sent to me on December 14 (not prompted by anything I can think of) on how to avoid NSF situations. It includes this part below the dotted line. So it looks like WaMu is at least somewhat open about it and does tell you that you can opt out.

    =====================

    Overdraft Limit
    If you don’t have one of these overdraft protection services, we may set an Overdraft Limit. With this limit, we may still pay checks and other transactions that go over the Available Balance you have in your account. The amount of money we may pay is determined by the amount of the Overdraft Limit.

    * We can increase, decrease, or take away your Overdraft Limit at any time. We show your limit on your statement each month, so be sure you take note of it.
    * You will still pay a fee, which you will see on your statement, for each transaction. We will charge a fee whether or not we actually pay the transaction for you.
    * An Overdraft Limit is not a line of credit. This means that you need to put money into your account to cover both your overdrawn balance and any fees immediately.
    * Even if you have an Overdraft Limit, we can still decide not to pay a transaction when there is not enough Available Balance in your account. Even if we have paid these for you before, we may still choose not to pay on any occasion.
    * If you do not want to have an Overdraft Limit, just let us know. You can call the number below or visit your local WaMu branch. Without the Overdraft Limit, we generally return checks and other transactions that go over the Available Balance you have in your account, and you’re charged an NSF charge.

  40. coren says:

    @HawkWolf: Same here, except there’s no fee. And since I have a sizable portion in the CU in case of emergency, well, I never have a concern about an overdraft.

  41. ChrisNF says:

    This is unheard of in Canada. Unless you ask for overdraft protection (usually at a high interest rate and a monthly fee of $1 or so), a debit transaction or ATM withdrawal would simply be denied.

    When working in the US last summer I encountered this at Chase bank and they condescendingly reversed the charges as a “one time courtesy”. Stupid me didn’t realize they would give me money that there was still a hold on. I can’t believe they don’t disclose this fee before continuing the transaction. It just doesn’t make sense.