Well the banks have to find someway to recover all the money they lost on subprime mortgages.

It seems to me, that in a realistic world, overdraft fees should only apply to checks. When you use a debit card, the bank knows exactly how much money you have at a given time, so they could deny the charge at the register if they wanted to. This is how it used to work, but now they just let you go over as much as they want to allow you, and then charge you for the privlage.

Overdraft fees made sense when you wrote out a check knowing that you didn't have money to cover it. But people don't hardly even use checks anymore.

Can I just say that I, for one, wish that banks would go back to making their profits based on the spread between the interest they pay on deposits and the interest they charge on loans.

It would force them to actually vet their borrowers for one thing.

The idea that depositors (i.e. the people lending them money) should be a "profit center" is pretty fricking repulsive.

I had my 2nd set of these happen on me last week. I went to setup a bill pay using check free and I put the wrong date in by accident. The check free system wouldn't let me cancel the transaction to fix it so I had to let it ride, boom $140 down the drain.. two 35$ fees on two 5 dollar transactions.. seriously. I am to the point where I am just going to cancel my debit card and go back to ATM card at this point.

The lessons that can be learned from this:

Finding 1: Over 50 million Americans overdrew their checking account at least once over a 12-month period, with 27 million accountholders incurring five or more overdraft or non-sufficient funds (NSF) fees.

Keep more money in your checking as a buffer. Stop spending more than you have in your checking. Keep an eye on your account and your pending transactions. Keep a count of what you're buying. Plan grocery trips to be after rent posts. If you're living from paycheck to paycheck, be hyper vigilant about when you're getting paid. If it's your first time overdrafting, try asking for the fees to be waived.

Finding 2: Banks and credit unions collected nearly $24 billion in overdraft fees in 2008.
and
Finding 3: Overdraft fee income for banks and credit unions rose 35 percent from 2006 to 2008.

Do the above and stop giving the banks so much money!

I recently went over my overdraft at the end of the month, when my bills came out. They've hit me for about $50 of fees per item that came out over the overdraft. It works out at about $500 for being $300 overdrawn for 24 hours, on the order of a hilarious 1 x 10^150 percent APR. Next time I'll go to a payday loan place to cover the difference, the rates are better.

@Kimaroo - 20% More Kitty Added!: Ah, but you're forgetting that they could charge a "rejected transaction" fee for rejecting those transactions you can't afford.

I'm sorry but why are banks getting vilified for this? I've managed to go my entire life without paying an overdraft fee, and I know tons of other people who share the same responsibility.

I also know many people who use their checking accounts as short-term loan accounts by overdrawing on a regular basis. They buy inane things like a pack of cigarettes or a half-gallon of ice cream or dinner at McDonald's. All things they have to have NOW, regardless that they don't actually have enough in their accounts to cover them. So, in reality, that dinner costs $40, but as long as they have it now, it's worth it later!

In the middle there are people who make legitimate mistakes regarding the balance of their accounts. A wife who takes $100 without telling her husband, or a check written in haste without memory. I feel sorry for them, and they are probably the ones this article is speaking about en masse, but again I need to point out there are millions of people who have paid zero, one or two overdraft fees in their lives.

When did we all become children who aren't expected to know what cash remains in our accounts or what headroom we have on credit accounts?

I'm sorry, I know that this doesn't really jive with consumerism as it relates to this forum, but I do believe that being a good consumer is about being a responsible consumer.

@Sockatume: A $500 fee for a $300 withdrawal is 166.67% interest for one day. Times 365 is 60,833% annually.

Crazy, but not the number you quoted.

Unless I'm mistaken.

@Sockatume: They could, but it could be something more reasonable like 5 dollars, instead of 35-50.

But no one ever said that banks were reasonable.

@zacox: fundamental attribution error, for the win.

@pecan 3.14159265: True, but the banks and credit unions are acting like a bad friend. They are enabling bad habits instead of preventing them.

@Kimaroo - 20% More Kitty Added!: What happens to the checks? Are they unpaid or do they charge a fee?

And who would pay for the "advance" if the person files BK?

What about gas stations? $1 pre-auth since it's pay at the pump, Bank okays it, it goes overdraft....how is that the bank's fault? Should the bank refuse gas station charges if you have less than $75 in the account?

I think all of the banks aren't allowing someone to use the card if they are already negative. It's the multiple activities that hit at once - at the end of the day - that hurt the most.

Or "I forgot about that check I wrote...."

@zacox: If people's habits are to blame, it's that they are too stuck in the mud in life to change banks. Lots of local banks don't operate a profit center out of fees.

BTW -- you could easily write the same editorial about fat people. You do feel sorry for them too, right? Let's insert into the health bill a charge of $35 per month for each pound overweight. I believe a good citizen is a lean citizen

Who ARE these people that overdraft their accounts? I've never paid a dime in overdraft fees in my life. With online banking, you can check your balance anywhere anytime for free. What's the excuse for spending more than you have?

And please don't give me the whole "what if the clerk accidently billed you ten thousand dollars" thing. Those incidents are QUITE rare...

@Hoss: In all fairness, many overweight people (not those with a genetic propensity), choose to shovel chili cheese fries into their greaseholes, just like many folks who overdraft, that live paycheck to paycheck, spend money eating out, on cable tv, smartphones, or other nonsense they shouldn't buy.

God forbid someone change their habits or live within their means.

@zombies.like.lattés.too: Yup. It's the driving force of most web commentary, I think.

@Kimaroo - 20% More Kitty Added!: If you don't like your banks policies, feel free to change to a different bank.

If you can't find one who will meets your demands, feel free to keep all your cash in a shoebox under your bed.

Thankfully, I'm not one of the 50 million that has overdrafted in the last year. We keep a spreadsheet and under estimate my weekly bring home paycheck. We subtract out our bills and go off the total left, with any money being made higher than the estimate as a small gift.

Pretty simple to do. We just compare the bank and spreadsheet 3-5 times a week and add in our purchases and will never go over due to it.

@smartmuffin:

Nobody should in this day in age. Though, I did when I was younger and had my first job/account. They stated that my account had a protection of $300 that I could draw on incase I overdrafted, but, of course, never told me of the $30ish fee for doing so. I quickly stopped overdrawing after that. Banks truely are evil.

@Joewithay: I don't think all people who overdraft are habitual overdrafters. More likely, they made one or two simple mistakes and that exploded into massive fees. They are still responsible for their mistakes but I don't think they're all bad at keeping track of their finances. Even the most vigilant of us slip. The key is to recognize that you're going to slip at some point, and put up mechanisms that will prevent this from getting too far. Like keeping enough money in your account as a buffer for when these things happen. I had classmates who had $16 in their bank accounts, and didn't understand how they were going to get into trouble when they had to buy textbooks on the same day they were supposed to get paid.

@JimBoSlobish: I'm quite sure that $30ish fee was included in some fine print that you didn't bother to read.

The banks aren't doing anything wrong. Read your fine print. If you don't like their policies, pick a different bank. Period.

@smartmuffin: Plenty of excuses, I'd say. One is not realizing that the bank doesn't cut you off, since it's not like people consciously enroll in this system. Another is the processing of withdrawals before deposits. Another is the debit holds placed on cards by various services. Another is having less money than you, so that the cushion it sounds like you enjoy isn't something they can rely on.

I do think that there are consumers who essentially accept these as a cost of living without realizing just how must of a cost they're paying. But I also think you're talking about overdrafts as if we were in the days of yore with a bounced check, and it's a whole nother financial world now.

@zacox: Adults should be able to choose whether or not they want to overdraft their accounts. Most of these banks call it a "courtesy" service as if they were coddling you like a child, when in reality they treating you like livestock.

@smartmuffin: Like I said upthread, I think most overdrafters aren't habitual overdrafters. I think a lot of them make one or two simple mistakes and miscalculate how much money they have in their accounts. This means they don't have enough in their accounts and need to shift resources, or they really need to re-evaluate how they spend money. But I don't think the majority of them are delinquents like some credit card users are. With debit cards, there's more connection to the money - it's not borrowed on credit. When it's gone, it's gone.

@smartmuffin:

I wasn't making an excuse, just a statement. I was young and didn't have someone there to really explain these things to me. My mother, at the time, really wanted me on my own and I never had the experience with accounts and agreements to pay that much attention. I was a kid being a kid. So, anyways, life experiences will allow me to teach my two sons the correct way to do things.

@zacox: you fail to realize that not everyone has a steady income such as yourself. Everybody does not have immediate access to know how much money is in there account. And these banks take advantage of that fact in many ways, the main of which is reordering charges.

It's good that you can't even comprehend getting an overdraft fee, good for you, but you obviously don't realize that you're almost the minority, and the overdraft scam has taken from many. Many that might have made a mistake, but not a mistake worth 30$ - 40$ a pop. I was charged four hundred and some dollars once for multiple <10$ purchases, because the bank held a check without telling me. It's out of control, and you need to realize it instead of claiming anyone that gets overdraft fees is a child.

try looking from another perspective for once.

Checkbook Registers FTW

Ironically payday loans and over-the-limit fees on credit cards are often cheaper. This won't get any better until we can opt out of overdraft "protection" and simply allow overdrafts to be denied. With fees such as these is anyone really concerned with the "embarrassment" of having a charge denied? If your billpay for, say, your phone bill didn't get processed because of insufficient funds you might get hit with a $5 charge from them which is certainly better than a $35 bank charge.

There's no reason for these high fees. There is very little service being provided in return. It's simply a way to profit from a small mistake. It's certainly easy to avoid these fees altogether (use cash, use a credit card, watch your balances) but there's no denying the fees are excessive and unreasonable.

@mm16424: How do you do that with a debit card without having to bring the checkbook along for the ride (which in part defeats some of the convenience). What we need is online account registers.

Of course, this don't address issues like the kid at the checkout register running your card through 10 times.

@ShruggingGalt: With Credit purchases at most pumps, they pre-authorize a certain amount. In my area, they would put a temporary $75 hold. They had to raise it when gas hit $4/gallon, People had to fill their tanks in $75 increments.. (it took 2 transactions for my brother to fill his ski boat.)

@zacox: I'm sure a lot of overdrafts are accidental. I accidentally overdrafted my account once because I forgot to transfer over money from my savings account after I made a large purchase. Luckily WaMu had one free overdraft a year so I wasn't stuck with the fees. I had the money to cover it in a linked account but I don't have the option for overdraft protection.

@QuantumRiff: Umm yeah...actually the banks do that. My debit card (MC) only auths $1. But at the same store I know that customers have holds of $75. (They call to complain about it). So it's not the gas station, it's the card issuer.

The $75 cap is still due to Visa.

@pecan 3.14159265: You're right on the money. I keep a $500 buffer in my checking account, enforced at the end of each month. Any month that I'm over $500, I transfer all the extra to my savings, so that I start over at $500.

Then when I have months like this last one where I had planned to spend a little extra, I was able to go below my buffer minimum and cover the extra expenses without dipping into my savings. Next month when spending is back to normal, I'll top it back off at $500 and put the rest in savings.

@smartmuffin: I've been charged overdraft fees a few times. Every time was NOT because I charged more than I had. Instead, it was stuff like other things that had been double charged already (but I didn't know, yet, because that was a week ago and I didn't get the monthly statement, yet). The most recent was a quarterly autopay where they had already batched out the payments 3 weeks ahead and just missed me changing the card to bill to. The charge thus went to the wrong bank (e.g. the older card which I was phasing out to eventually close that account).

In all cases I eventually got these charges reversed by the bank, or was compensated by the vendor that screwed up. But in some cases it was quite a mess because of the chain of overdrafts that would keep happening one after another.

@pecan 3.14159265: I don't disagree with your problem prevention practice. However, I do want to comment on the part of your post regarding, "They are still responsible for their mistakes." I agree that this is true, but the problem here has nothing to do with that. The problem is that the banks are not just trying to protect themselves from their client's mistakes which is the only reason that overdraft fees should exist. They are purposely trying to increase the amount of mistakes that their client makes using very shady practices and penalizing far more than what is necessary to protect themselves.

No one tries to protect themselves by creating a system purposely designed to heavily increase the amount of danger you are subjected to. That is both counter intuitive and ludicrous...unless your goal is something other than protection. In this case, the goal when it comes to overdraft fees is mostly to profit directly from them and that's what is wrong with the system. Their goal should be to aim for more profit by reducing the danger...reducing the actual overdrafts that happen. It should not be by trying to increase the overdrafts and penalties incurred by them.

@LostAtoll: Lets do it this way:

1. Banks must process charges in chronological order.
2. Banks must make "overdraft protection" an opt-IN.
3. You live with the consequences of YOUR decisions - both opt-in and charges.

There, plain and simple.

I've overdrafted once during the 20 years I've been a wage earning, bill paying adult. I would think that anyone hit with major fees like some have described would safeguard themselves in the future. With more people being more careful, the number of incidents and the amount paid should go down.

If an overdraft resulted in a punch in the face, you'd try to avoid it. I don't enjoy being punched in the face or the wallet.

If you do online banking, spread the payments out. Don't set it so 10 bills are paid on the same day. That way you'll never be hit with 10 individual overdraft charges should something go wrong that day.

I've only overdrawn on my checking account once in the last twenty-something years that I've had an account, and once I ended up having to rely on the $500 "line of credit" attached to it to avoid an overdraft (which I paid off within days to avoid the high interest application).

I've made is a rule of thumb to NEVER cut a check unless there is either ample funds in the checking to cover it or I can easily transfer the cash to the account within the same day of writing the check. OH and I never withdraw cash from the checking, savings ONLY.

Why more people aren't more careful with their accounts I'll never understand - especially these days!

@pecan 3.14159265: I am actually getting tired of this old topic. Is there a Center for Responsible Borrowing (CRB) that could explain to people NOT to spend more than they have?

That said, it is pretty disheartening that our banks are relying on late fees and overdrafts to make a buck.

@wagenejm: You're right on the money. I keep a $500 buffer in my checking account, enforced at the end of each month. Any month that I'm over $500, I transfer all the extra to my savings, so that I start over at $500.

That's fantastic, but considerably harder to do when your paycheck at the end of two weeks is in the neighborhood of $500.

Personally, after paying all of my bills, I'm lucky if I have a $200 cushion to cover any additional expenses that may crop up in the next two weeks. A single unexpected expense (a repair of some kind for the car) will generally blow that away, even if it doesn't result in the need to use credit. It can take months to build back a cushion, so a double-whammy can very easily cause problems.

(And before any starts blaming the consumer here, my monthly expenses are probably already considerably less than what most people pay—phone/internet comes to $35 per month with no cable TV expenses for example—the main problem I'm dealing with right now is a layoff in the family)

There's a reason why these overdraft fees are so regressive. They deliberately target people earning less money who generally can't easily afford a cushion.

@Corydon: You sure? Because I remember that time being one filled with fees. A free checking account? Laughable.

Also, remember that during that time, interest rates were up in the teens. I don't miss my 13% mortgage. Then again, I'd love my 7% savings account back...

@zacox: also know many people who use their checking accounts as short-term loan accounts by overdrawing on a regular basis. They buy inane things like a pack of cigarettes or a half-gallon of ice cream or dinner at McDonald's. All things they have to have NOW, regardless that they don't actually have enough in their accounts to cover them. So, in reality, that dinner costs $40, but as long as they have it now, it's worth it later!

The plural of anecdote is not data.

Overdraft fees are no joke. It is extremely important to make sure the money is in there. I think people have the attitude like, "aw well, it's only $35 or so. That won't hurt me." But in the long run, if you do it every week for a year (52 weeks = $1,820), for example. We just have to be smarter and more conservative with our money. Put $10 in that gas tank instead of filling it up all the time.

@sleze69: As stated in my above post, it is not so much about consumer responsibility as you may think. It is more about consumer awareness.

Think about it. If a system started being used tomorrow where all banks informed the users that the transaction they are about to make will result in an overdraft, and then lets them decide whether or not they want to proceed then how much do you think the % of overdrafts will decrease in the next 2 years? The consumers are much more responsible than today's numbers make it seem. The banks are simply refusing to provide them with a proper system which allows them the opportunity to consistently make the more responsible choice.

The only people which would lose anything from such a system are the banks, and the only reason they would be losing anything at all is because they have opted to abuse the practice of overdrafts by turning it from a system of protection to a fundamental cornerstone of their profit making business plan.

@Kimaroo - 20% More Kitty Added!: Our bank has started applying them to everything, card swipes, atm withdrawls and bill payments sitting waiting to go out. Their excuse is they are doing you a courtesy. Wouldn't not sending out a bill pay and sending an email notice by a courtesy too? But one doesn't come with a $30 incentive for the bank.

I micromanage our accounts but I am still really bitter about the $30 pack of gum because the bank let a card swipe go through and I had not told the other half I had zero'ed the account out for a few days. They should have declined the damn charge.

@smartmuffin: This adds more problems. As technology has evolved our money system banks have become almost a required business service. You can no longer buy certain goods or services without a bank and many employers require direct deposit.

@prag: Exactly. That's all I want. I try to keep track of my money, but like a human being, I make mistakes. Basically, if I wanted to spend money I didn't have, I'd get a credit card, but I don't understand why it's so goddamn difficult for a bank to deny a purchase if I can't afford it. It's not embarassing, or at least if it is, it's a momentary two minutes of being red-faced, as opposed to hundreds of dollars in fees.

@pecan 3.14159265: In a perfect world yes. With so many people having employment issues or other financial strains right now there are more people living paycheck to paycheck or trying to scrape it together week to week.

Everything has gone up in cost at the same time. I have noticed every single bill we have has found a way to raise their fees a few dollars.