Posted on Thursday, 4th February 2010 by debtpreventions
A 2009 USA Today survey found that each of the 10 largest banks allow consumers to overdraw checking accounts. By doing so, banks reaped a record $38.5 billion from overdraft fees that year, nearly twice the $20.5 billion collected from credit card penalties, such as late and over-limit fees.
“Overdraft fees are the mother lode of (deposit) fees,” says Michael Moebs of Moebs Services, an economic research firm. “If it weren’t for the overdraft fees, 45% of banks and credit unions wouldn’t have made money in 2008.”
Banks have covered a debit card overdraft as small as $1 and charged a fee as high as $35 as well as charging $7 – $10 daily for being negative after a certain period. Some banks also charge fees before consumers actually overdraw by deducting a purchase when it’s made, instead of when the transaction clears. And they process transactions in order from highest to lowest dollar amount to empty the account quicker and trigger more overdrafts.
Banks contend consumers can avoid overdrafts by keeping track of their money. Consumers contend, though, that banks’ policies make it challenging to avoid fees. Banks have long said that customers appreciate automatic overdraft coverage and that this service helps consumers avoid the embarrassment of a declined transaction. In truth, as banks have now acknowledged, these fees can push consumers into financial distress.
Rep. Carolyn Maloney sponsored legislation requiring banks to obtain consumers’ permission to cover overdrafts, disclose APRs, and pay transactions in a way that do not increase fees. The Federal Reserve’s new regulation prohibits banks from charging overdraft fees on ATM and debit card transactions unless consumers “opt in” to overdraft protection. The regulation is effective in July 2010 and it protects consumers who unknowingly overdraw their accounts.
In anticipation to the changes, some banks have eliminated “free checking” accounts and are finding new ways to raise revenue by hiking ATM fees or introduced charges for features, such as identity theft alerts, that they once offered for free. J.P. Morgan Chase renamed its Chase Free Checking program to Chase Checking, and added a $6 monthly fee. TCF Financial Corp, a Minnesota based bank who turned retail banking upside down in 1986 when it introduced “totally free checking” accounts, is now putting an end to them.
Although overdraft fee charges have been limited, consumers are angry that banks are passing them the “bill.” Sadly, banks had to rely on overdraft fees to compensate for bad loans. Consumers should anticipate new and creative banking fees in the coming months.
Tags: Bank, Checking, Consumer
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