Consumers to Get Some Relief on Overdraft Costs
Faced with the threat of legislation, banks are moving "voluntarily" to address growing complaints from consumers.
By Matthew Mogul, Associate Editor, The Kiplinger Letter
October 11, 2007
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Banks will agree to limits on overdraft protection plans, services used to cover customers who withdraw or spend more than their accounts hold. The programs can spare customers the embarrassment of bouncing a check but not without significant costs that have many consumers up in arms. They complain of being enrolled in such programs without their consent and of getting hit with lofty fees without any warning.
Congress is paying close attention to the complaints. Lawmakers are threatening to pass a bill cracking down on several common practices, including automatic enrollment and hidden fees. To forestall legislation they fear will go too far, industry groups will move on their own to adopt some of the bill's provisions to assuage consumer concerns and forestall a law that banks fear will go too far.
Overdraft fees have morphed into a big money-maker for lenders, exceeding $19 billion this year -- up 85% from 2004. Banks charge as much as $35 for a check, ATM withdrawal or debit purchase when funds to cover them are lacking, even if it's a $2 cup of coffee that puts a customer into overdraft territory. The sharp increase in total fees is largely due to two factors: The increasing use of debit cards and the fact that many banks automatically enroll customers in overdraft programs without them knowing about it.
Bank reforms will include more disclosure and a requirement that consumers "opt-in," providing written consent that they want overdraft coverage and agree to the fees.
Lenders will also give consumers less-costly options when they open an account. For example, for a marginal fee they'll be given the choice of linking their checking account to a savings account or credit card to cover the difference when the funds are overdrawn. Many banks will also begin to employ a tiered overdraft system that waives fees for the first overdraft and gradually bumps up charges each time too much money is taken out. Plus, more ATMs will be programmed to give warnings and list fees when users try to withdraw more than what they have in their accounts.
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Reader Comments (13)
Posted by: Chris at 10/12/2007 03:25:50 PM
There's another huge problem. Let's say you get paid on Friday, and you accidentally overdrafted on Monday. Well, lucky for the bank: They can keep trying to process that check THREE times while charging $30 a pop. My bill ended up being $90! It's so unethical.
Posted by: Jason at 10/12/2007 04:49:13 PM
This is absolutely rediculous. The banks need to just say what they are doing. Trying to get more money out of the customer. Who asked the bank to be concerned about how I feel when the card reader says Denied when I dont have enough money. I sure didnt ask them to care. Its nice that the place where I put my money to save it doing all that it can to take what little money I have. It is also rediculous that they would charge me to automatically take funds out of one account and put it into another. That change would likely take less than 30 min to implement but the banks would have you believe that it is costly. Maybe if they stopped building excessive amounts of branches they would save some money. Maybe they should actually have more than 3 people in a bank where there are 10 windows and a line out the door. This is a very simple process to correct... if you want to have overdraft protection, ask for it and pay a fee. Most of the people will probably cancel it because it only costs you money. I prefer that when I dont have any money in my account that it tells me. It helps me keep my finances in check and not have to go more in debt.
Posted by: Jason Zellmer at 10/12/2007 05:18:26 PM
How about if a customer is using a debit/check card and doesn't have the money. just decline the transaction. I know it would never work unless there was a law because then how would they steal $19 billion a year from the poorest people.
Posted by: jeffsters at 10/12/2007 05:25:40 PM
Here is a good one... I have three bank accounts, used for different purposes, two at the same bank. I deposited a check from one account to another and 5 days later went on a trip. I used my ATM card while I was away the other account didn't have one. Well guess what? The bank took until 5PM on day 5 to credit my account the money. It held my previous three days of ATM charges until 3PM, and cashed another check I wrote at noon. Interestingly, they cashed the larger checks first. The result? While I had enough to cover a majority of the checks and ATM withdrawals, the two large checks emptied my account! So rather than two $25 charges with two re-deposits, I got seventeen (17) $25 charges which then emptied my account AGAIN! All this while I was away before I can get back and fix this mess I get ANOTHER ten re-deposits and even MORE returned check fees. They specifically time things so they maximize the possibility of you going negative. That's what needs to be looked at!
Posted by: Chris Weller at 10/12/2007 07:03:53 PM
In my own opinion over drafts are a good thing. They give punishment for not keeping your accounts in order but the current penalties are way to harsh. I think legislation should be passed that would limit the overdraft to 10% of a transaction not to exceed $35. So if you over drafted $2.00 the charge would be $0.20. and if you over drafted $300 it would be $30. I think that is more than fair. The banks would get a good fee for the amount lent to a customer. That is still a good interest rate. Also the charges should be kept separate from the account so that that fee doesn’t affect your account and cause more charges. You should get 30-45 days to pay that fee. Also banks have to be required to process chargers and deposits in the order they come in not selectively applying debits to incur more fees.
Posted by: tom at 10/16/2007 12:38:22 PM
5/3 bank is the biggest rip off bank in the industry, they have fees and rates that are out of this world........
Posted by: ngibson at 10/29/2007 09:09:00 PM
I bought gas and the gas station put a $75 hold on my account. The transaction for the $20 worth of gas I bought cleared the account, but my bank still would not clear the hold. I finally got the gas station on a 3 way call with my bank and the customer service rep removed the hold after I had been told by 3 different reps before that it was impossible for them to remove the hold. The customer service manager called me back and wanted to reverse the hold. It seems like Texans Credit Union doesn't really care about the customer.
Posted by: Tarik at 11/28/2007 08:01:56 PM
"Legalize loansharking" sums up this practice of ridiculous overdraft fees, and a lackluster option for overdraft protection. 2 dollars, does not equal 35 dollars. And if it does, why should my savings account have to cover the 2 dollars that the bank knows I'm good for. Many of us have direct deposit, we are doing business with the banks on a weekly or bi-weekly basis. The banks know we are good for it.
Posted by: Phil at 12/08/2007 07:22:36 AM
Banks and overdraft fees. I found out the hard way. In my opinion the main reason that overdraft charges occur is the way that the banks computers process charge transactions, when you use your ATM/debit card (visa or MasterCard) as a charge card. I'll explain why. Let's say you have 100 dollars in your account and you go to your local Mall and make a purchase for 40 dollars and use your ATM card as a debt card (charge card) against your checking for the transaction, well, you should have 60 left in your account, right? You would think so wouldn't you? You start with 100 charge 40, 60 left right? The next day you go to the ATM to make a withdrawal it says you have 60 dollars available, right, ok you take out 50,you should have 10 left.... Right? 50 + 40 =90, you started with 100 - 90 = 10 left right? Wrong, you just triggered an overdraft when the transactions hit the bank computer that night, according to the banks computer, the 40 that you charged for the purchase the day before was a charge card transaction, even though they deducted the money from your available balance right away, there is still going to be a hold of 40 dollars against your account until the 40 charge transaction clears the banks computer which takes about 3 to 4 days and the hold drops off your account. So even though the ATM says you have 60 available, which is what you have left in your account, any withdrawal over 20 will trigger an overdraft charge, until that 40 dollar hold gets cleared and dropped from your account. Why? When the transaction hits the bank computer that night. It sees the 60 that you have, but, it also sees a 40 hold on the account for the charge transaction that hasn't cleared yet, so effectively until that hold drops from you account the banks computer will automatically kick out an overdraft fee for any withdrawal above 20 dollars. That's right folks when you use your ATM/debt card (visa card/MasterCard) as a charge card the bank is putting a hold for the amount of the charge against your account, even though they have already adjusted your balance for the amount of the transaction ...That's right, THEY HAVE A HOLD ON AN ALREADY ADJUSTED ACCOUNT BALANCE, AND THAT HOLD REMAINS UNTILL THE CHARGE TRANSACTION CLEARS AND THE HOLD DROPSOFF YOUR ACCOUNT. I don't know if your banks computer is set up to figure transactions this way, but I know of 2 that do, (continued)
Posted by: Phil at 12/12/2007 06:53:33 AM
I don't know if your banks computer is set up to figure transactions this way, but I know of 2 that do, I had an account with one of them for years and never had a problem with my account until I got their new ATM/debt MasterCard and started using it as a charge card. That's when I started to have problems and overdraft charges. I finally figured out what was happening and brought it to their attention, about what was triggering the overdraft charges and got into a long heated discussion with them about it. I got the overdraft charges back, after going over line for line on their computer, and proved that I had the money in there, it was just the way that the computer interpreted the hold against the already adjusted account balance that was causing the problems, It was a very hectic undertaking because one mistaken overdraft charge on the banks part can start a chain reaction of overdraft charges. After everything was said and done, I had to change banks. So, to some this up, I'll bet if you have had problems with overdraft charges and you can't figure out why they're happening, It's because you used your ATM/Debit card as a charge card. Your first clue will be, when the bank official sits down with you to go over your account to try and explain the charges, if you hear them start talking about hold amounts against your account because of charge card transactions that haven't cleared yet bend over because your being screwed. continued)
Posted by: Phil at 12/15/2007 11:45:29 AM
Bank (Hold) period, it's during that hold period that the Bank gets you with overdraft charges or NSF fees. The Bank's computer factors in the holds against the balance in your account. Hold amounts should not have anything to do with putting your account into overdraft. A Hold is money that hasn't been sent out yet by the Bank, or in banking lingo, it hasn't hard posted yet. Besides that a lot of holds get dropped off without the bank ever sending money out to anyone. They never get posted or turn into hard transactions. But, if you have those invalid holds against your account, the Bank's computer is very likely to kick out a NSF fee or overdraft charge if the account balance is below the hold amounts. When the Bank goes to clear that hold, (hard post the transaction) or (send the funds out) however you what to say it, that should be the only time that the Bank's computer should be able to kick out an overdraft or NSF fee. Do you understand what I'm saying? If the funds aren’t available in the customer's account at the time transaction gets hard posted, (the Bank sends out the money) that should be the only time that a overdraft charge or NSF fee should be allowed to be generated. Until the money actual leaves the control of the Bank, I don't care what status the Bank says that it's in, for their accounting purposes, call it a hold status or whatever. The bottom line is, the Bank still has the money, and it's the customer's money, until the Bank sends it out. Check21 was passed by Congress to stop people from as they say from (floating checks). As it stands today the Bank is (floating transactions) from the use of (holds) against customer accounts. The difference being is that the Bank's are making Billion's of dollars a year off the backs of their customer's the way that they're doing it. I heard the expression one time that," if a man steals $20.00 you call him a thief," but if a man steals 20 Million dollars you call him a banker." I used to think that expression was funny, but now I believe it to be true. Here's another expression," the Bank steals our money, and Congress drives the getaway car." Let's hope for the sake of all the hard working American people, that this expression is not proved to be true also.
Posted by: Don at 07/12/2008 12:20:16 PM
i am on social security and my SS check is deposited on the 3rd of every mouth. this month i overdrew by 50 cents. the bank charged me 35 dollar. then they held my SS money for 4 days not paying any check i wrote for rent,food... then on the forth day the bank started to pay my check but using the total amount plus the overdraft and the 35 dollar charge. that made me overdraw again. then again. my overdraft fees ended up being 469 dollars. and my rent check bounced too. now i have no money, no bills were payed for this mouth and there are 20 dollar fee to make good on each of the bounced checks. i just don't know where to turn. the worst is that now the bank is charging me 6 dollars a day. for not paying the over draftfees.
Posted by: Aggrevated at 09/29/2008 06:05:17 PM
BOA and the other banks all have the same policy and I'm not buying the "can't set the $500 limit to $0" party line. So far this year it's cost me over $800 to bank with them. I switched to INGDirect who don't charge a $35 transaction fee, they do charge 9% interest on on any overdraft amount. The only way to make banks listen is by voting with your cash and banking elsewhere.