It made sense back in the days of checks, because back then overdraft fees where almost always cheaper than the bounced check fee you got from businesses.

But debit cards have made much of this extinct.

Absolutely Yes. Automatic overdraft enrollment exists solely to confuse and mislead customers to incur charges.

It's mind-boggling that they have to pass a law to make banks ask customers for this "feature".

YES YES YES OH MY GOD YES!!!!

I'm honestly a little torn here. I'm with ING Direct, and there is no $35 charge for my overdraft. Instead they charge me like 10% interest on my overdraft until I get it above zero. Kinda like a small floating credit card. Only happened to me once, when I overspent on vacation. But it was really cool.

Besides, is there really a difference between a $35 charge where your check goes through and a $35 charge where your check doesn't go through? Oh yeah -- in one scenario, my check goes through!

I agree. Turned off the second I found out it existed and of course after i got whacked 35 bones. Seems silly, if I don't have money in account, simply deny the charge, don't pay it and expect me to give you 35 for "being nice".

This is especially bad when you do have an overdraft protection account...with no protection in it. Then the fee becomes $120. As a college student, I'm grateful for the lesson to pay a little more attention to those transactions that I always assumed were instant, and which weren't being calculated until later.

But I do think this practice is out of control and tricky, and I think most people would rather have their card declined than owe the bank like $70 for a careless $5 purchase.

That's how it should work for anything that costs money or might incur a fee. Companies should not be able to say, "Hey, I signed you up for this thing now pay up!"

ive been with boa for 9 years now. at first they would hit me with overdraft fees. now they just decline my card. i didnt ask for them to stop the fees but im glad they did. its kinda funny because the first day that my card got declined it made me very happy. kinda confused the clerk who was checking me out. i think she thought i was crazy for me enjoying having my card declined. but hey it saved me $34

@Jim Topoleski: Bingo.

And bank fees are like the government collecting taxes. Once it's been in place for a little while, it becomes an entitlement.

I am in favor of keeping them only if banks would post the transactions in the correct order and not from highest to lowest in order to get more overdraft fees.

Sad to admit it but in college if I knew I was getting paid in a few days and would have the money, I would still write the check (only if I had to) and suck up the overdraft fee.

@aguacarbonica: That happened to me in college as well. They signed me up without my permission and linked it to an empty savings account. Then when I overdrafted (which was also their fault, btw - how are they allowed to rearrange the order of charges AFTER they happen??) they charged me 4 of the fees and kept charging fees on fees because the savings account was empty. Then they told me it was my responsibility to pay all those fees for a service I never even signed up for.

Thankfully, throwing a full-on-screaming shitfit in the middle of my local branch solved the problem.

And to add one more thought: My acid test on this kind of thing is this-- "If everyone paid everything on time, can the bank be profitable?"

The answer ought to be yes, IMO. Instead, more and more lenders have become reliant upon a certain amount of bad behavior in order to collect fees (late charges, overdrafts, etc).

I'm not sure how I feel about this. It seems that when the customer signs up, it's in the paperwork somewhere that you're being signed up for overdraft protection. If you choose not to read what you're signing, well, that's kind of your own fault. Is it really necessary to pass a law to protect people from their own carelessness? If you don't like banks that auto-enroll you in overdraft protection, choose to bank at an institution that doesn't institute such policies. The Feds have better things to do than babysit consumers who are too busy/lazy to read the fine print of the agreements with the banks. I'd favor a rule that heavily punishes banks that don't disclose the auto-enroll feature, but I suspect there is already something on the books for that kind of thing. This is simply aimed at voluntary transactions where one party chooses not to understand the entirety of their agreement with the bank (again, assuming that it is indeed disclosed in the agreement).

The convoluted and labyrinthine nature of most banks also works in their favor in this regard. I remember asking specifically that overdraft protection be removed, then of course several monthes later when I went $3 over I was hit with the fee. When I called customer service they pretended that I was making it all up. They actually suggested I take it up with the guy who set my account.

Overdraft charges was the ultimate reason I made the switch to credit unions. I highly suggest this as well for anyone else whose ripped their hair out trying to get these type of situations resolved.

The number of checks written (and by default the number of checks bounced) fall and the bank loses that income so they bring another up. If legislation knocks this down them mark my words a different fee or "courtesy charge" will pop up. I love the name courtesy charge - its almost as if the banks would be offended if you were upset about the charge.

I too have had the crazy bank fees. In fact, just after this Christmas. Thought my check went in, it didn't get posted before all my charges for gifts, dinner, etc, and WHAM, checked my banking the following business day after Christmas and was shocked to see $198 in overdraft fees. One was for a $7.99 CD I bought, then $10 at Hallmark. Actually, none of the transactions that put me over were even close to the charge the bank imposed. I called and they reversed 2 of the 8, but it left me feeling violated... and stupid.

I tried removing mine about five years ago, and spent a half hour on the phone with a lady that *blatantly refused* to let me disable overdraft protection.

Wells Fargo.

Thank god for brokerages. I once got hit by the checking overdraft cycle when I had an account at wells fargo. Then I did some homework, talked to my parents, and opened a SmartCash and Brokerage account at Fidelity.

Now if I don't have enough cash in my brokerage checking to cover a check, ATM withdrawal, or check card purchase, they liquidate Money Market funds to cover it. If I don't have enough in MMF positions, then it overdrafts to margin- which I can float comfortably if I want to pay interest (the max rate is 8.5%), or cover by moving funds over from savings, or selling equities.

No fees for the overdrafts, just margin interest... Which is tax-deductable.

It was kind of a pain to set up (they have a "funds manager" that has to be configured properly), but it's very flexible and powerful. Plus, fidelity refunds ATM fees worldwide!

How in the world is it "babysitting" by the feds to pass this law?

Seems to me, passing a clarifying regulation that states that, yes, consumers have to explicitly sign up for this instead of having it buried in the fine print is incredibly do-able and reasonable.

I am not a "lazy consumer" if I don't have time to read a 30 page fine-print document when I sign up for a bank account- 1) I shouldn't have to, and 2) since when is it a best consumer practice to not make all charges clear to the consumer?

@parliboy: there is nothing to be torn over- just say "yes" when they ask your permission ;)

@parliboy: This also happened to me. But I was pulled some money from my Orange Savings account the same day. No interest charge. That was almost a bad day because my apartment complex pulled the rent twice!

YES.

What's worse then paying $35 because you swiped your debit card for a $0.99 candy bar at the drugstore?

Hearing a bank representative tell you how this is a "service" and most customers would "want" to have their transaction go through even if they do not have enough money in their account. For $35.

It seems that when the customer signs up, it's in the paperwork somewhere that you're being signed up for overdraft protection.

@Pylon83: It wasn't in the paperwork for the last account I opened. It wasn't something they offered yet. I got a letter in the mail about a month after I opened the account stating that they were signing me up for the new service.

@Adam Rock: I was going to post the same thing. I tried to remove this "protection" on my 5/3 checking account but they *refused* to let me do it.

Now I leave $25 in my account just in case I need a few dollars cash and there's one of their ATMs nearby. I refuse to use any of their other services because of this practice.

I don't know, I've only bounced 1 check in my life and since then I've always made sure that I don't write a check or make an e-payment unless I have or transfer the money to the account first. I never use my debit card for anything other than an ATM transaction, either - I'm living in the past, aren't I? lol

The fee that pisses me off even more than overdraft is the one for bad 3rd-party checks.

1) 3rd party's account was overdrawn.
2) I didn't get any money.
3) I was charged $30 by my bank for a bad check they didn't cash.

W.T.F.?

I would have gone after the 3rd party for restitution, but...it was my mother.

Most of the overdrafts I've incurred have been due to delayed transactions-- a corner store, bar or restaurant merchant not submitting their debit transactions for a couple of days. Meanwhile, I'd forgotten that I spent that money, and the fees start to pile up.

What would happen to these merchants if my overdraft protection was turned off? The card would get denied several days after I'd made my purchase and left, leaving them with...what? An unpaid tab? Sorta seems like it'd be similar to bouncing a check.

I hate overdrafts, but they seem to guarantee that the system keeps on rollin' and everyone gets paid.

I am slightly confused. Does "overdraft protection" mean you're allowed to write a check for more money than is in the account *when it's not linked to another account*?

I'm set up to automatically overdraft, but it draws FROM MY SAVINGS ACCOUNT (and won't go if there's not enough in savings to cover it). It rounds up to the nearest $50 in doing the transfer into checking, and it charges me $3.

THREE DOLLARS.

So I'm kind of going, "Holy crap, thirty-five dollars? SERIOUSLY?" Are you paying $35 to take an overdraft LOAN here on money you don't have, which I can see how that might be a benefit for some customers, or are you paying $35 to access your own money in your own linked account? Because HOLY CRAP!

At $3 it has on occasion been helpful, typically when my husband forgets to record a check in the register. Or I haven't recorded one yet and he writes one not knowing I didn't record one. But I still count that his fault since I'm in charge of the register. :D I think we've overdrafted twice.

THIRTY-FIVE DOLLARS? That's highway robbery!

(I am with a credit union, tho. Hi, Homer Jay!)

I remember the last time I setup a new bank account. it was at least five "no"s to not have this service attached to my account. My current CU? One.

I'm against this. You don't have to use a bank. And the feature of disabling this is available to those who think to ask for it. It's not the banks fault you're a twit.

Also, a family member who works at a bank told me that most of their revenue comes from overdraft fees. So if you do away with it, or you get more people off it, you will definitely see more fees sprout. It'll start with no more free checking, and the costs will get passed to everyone, including the responsible people who weren't overdrafting.

@Rectilinear Propagation:
That becomes more problematic for me. However, if they gave you notification prior to enrolling you (presumably under some other clause in the contract saying they can do so w/ notice), and sufficient time to reject, I don't see a problem.

@JohnDeere: Yup, another BoA customer here, both for personal accounts and the business accounts. I have this "feature" turned off on all of them (plus on my Cap One cards), and do giggle to myself on the rare occasion that a card is declined. Yes, I value my humility at less than $35.

@lars2112: "banks would post the transactions in the correct order and not from highest to lowest in order to get more overdraft fees."

echo that!

@Ash78: Negative activity profits?

@Trai_Dep: Next year you'll be on consumerist writing more witty comments about how bad banks are when they lay off half their staff because of the loss of revenue, and how the greedy CEOs stopped offering you free checking.

Let me guess, every American is entitled to a bank account with no fees, no gotchas, no revenue for the bank.

@twophrasebark: Just like most people want to pay the $300 transaction posted the last and bounce 6 others which add up to $300 posted before the $300 one...

Banks love the profits they make from our accounting errors. Count me among those who'd rather have my card declined than be socked with a "protection" fee, as I prefer to not spend money I don't have.

@Ash78: That's an excellent way to put it. Any regulations of banks and credit card companies should be predicated on this notion that penalty fees (and the policies which artificially increase their occurrence) should not be a necessary element of the profit margin. Perhaps that would encourage some more sane banking business models.

@Ash78: How else do they make money off people who have less then a $1000 in their account at one time?

Are they to process all your transactions, pay your bills (and the postal fees), and make your atm cards, all for the 2% they make off the $3 in your account?

It's absurd. If I owned a bank, and this bill passes, I would close every account that had less then $1000 balance and tell them go #$@$ themselves and hide their money in a tin can.

@Bladefist: Pretty much with the "no gotchas" part. If they are trying to trick me into giving them money, they should be qualified as scam artists.

Yes they should be able to charge fees, yes they should be able to generate revenue. If the only way though is to trick their customers though, then they shouldn't be in business.

@Bladefist:

I'm inclined to agree with you... I don't necessarily mind that the banks automatically opt you in, but i do think that the process of opting out should not be a huge hassle (something similar to signing up for paperless billing).

What I DO think should be reformed is that banks charge $35 on 99 cent overdrafts. It should be in some way proportional. It would be nice if fees for overdrafts of $5 or less were a $5 fee, $5 to $100 overdrafts were $35, and over $100 could be $50.

The problem with the system the way it is now, is that for a family living paycheck to paycheck,with a tight budget and a balanced checkbook, 99 cents is a rounding error that could cost $35 and catch them in a cycle of over drafting for months.

@parliboy:

The reason this is a problem is that debit cards have changed things. It's not uncommon for me to use my debit card 8-10 times a day. If I make a miscalculation or my payroll check takes an extra day to clear, I get nailed with $350 in fees. A $35 fee isn't so bad when it's protecting from a rent check bouncing. It sucks when it's allowing me to buy a coke and some gum.

@Bladefist: This is why some banks charge fees for having a low balance. The overdraft fee is not a good (or honest) way to recover that cost.

@Secret Agent Man: I agree. Banks should do that. But I still don't agree with the government forcing a company (a bank) to change their fee habits.

@Secret Agent Man: I just had a friend who, due to a bank teller error in entering a deposit slip, ended up $100 short in her banking account and overdrafted. Over the MLK weekend, when it was impossible to reach customer service, the bank cycled her up to FIVE HUNDRED DOLLARS in overdraft fees on that one problem, which was the bank's error in the first place.

THAT needs to be fixed.

@teh: Then it costs money for all poor people, whereas the overdraft fee just costs money for the irresponsible poor people.

@Bladefist: No! That is not the point. Free checking has nothing to do with the overdraft fee. Those are two different issues. Quit trolling. The consmerist has no problem with banks charging honest, upfront fees. The consumerist just has a problem with banks sneaking these charges onto unwitting customers.

@Bladefist My bank has an overdraft protection program where you pay them 35 a month and if you go under they automatically transfer from another one of your accounts and charge you and additional $5 for each occurrence. This is what I call highway robbery