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Overdraft fees still a mystery to many people

A new study indicates that despite federal reforms consumers are still angry and confused about banks' practices.

By MSN Money Partner Jul 3, 2014 11:25AM

This post comes from Krystal Steinmetz at partner site Money Talks News.

Money Talks News on MSN MoneyImagine getting hit with $90 in overdraft fees for a $3 taco you purchased with your debit card. The only thing that might make that situation worse is not being able to recall if you signed up for overdraft protection on your debit card in the first place.

According to a new report from Pew Charitable Trusts, many Americans are still confused about banking rules regarding overdrafts, despite a requirement that customers need to opt in for debit card overdraft protection.

Bank Vault © Radius Images, JupiterimagesIn fact, more than half (52 percent) of people who paid a debit card overdraft penalty fee in 2013, said they did not remember signing up for the service. And it gets expensive. The report said:

In 2013, overdrafters report paying total fees averaging $69 during their most recent overdraft. Although the median total reported was $35, a quarter of overdrafters paid $90 or more during their last overdraft.

Since 2010, federal regulations have dictated that banks get consent from customers before they can process overdrafts and charge overdraft fees. If you don't sign up, your card will simply be declined if you don't have enough money in your account to cover the purchase.

Before that, consumers were automatically enrolled in so-called overdraft protection. But people are still confused. Pew said the results of the survey are troublesome.

"Checking accounts are the most widely used financial product in the country, yet many consumers are still concerned and puzzled by bank overdraft practices," said Susan Weinstock, who directs Pew's Consumer Banking Project. "Overdraft protections shouldn't be a guessing game."

When it comes to overdrafts, the study found that younger, nonwhite and lower-income consumers, as well as people who don't have a credit card, are more likely to rack up overdraft penalties.

Customers also appear to be fighting back against their bank's overdraft fees, the study indicated. According to MarketWatch:

Although there was some overlap among consumers, approximately 13 percent of people who paid an overdraft penalty within the last year say they no longer have a checking account, 19 percent reacted to their overdraft fees by discontinuing overdraft coverage, which consumers must opt into by law, while 28 percent actually closed their checking account in response to overdraft fees.

Overdraft fees equal big bucks for banks. According to The New York Times, banks accumulated $16.7 billion in overdraft penalties in 2011 -- about $6 billion of which could be attributed to debit card overdrafts.

Pew is urging the Consumer Financial Protection Bureau to require banks to do the following:

  • Provide consumers with clear and uniform pricing information for overdraft options.
  • Make overdraft fees reasonable and more in line with the bank's costs to cover the overdraft.
  • Prohibit the reordering of transactions to maximize the overdraft fees. For instance, if you have a $50 transaction and a $5 transaction and $49 in your account, the bank could clear the $5 transaction first, so you'd only have one overdraft, instead of two.

Do you understand your bank's overdraft policies?

More from Money Talks News

Jul 3, 2014 2:33PM
I understand the policy just fine.  If I write checks or use my debit card when I don't have the money on deposit, I pay an overdraft fee. 
Jul 3, 2014 1:50PM
I finally gave up on commercial banks altogether and went to a great credit union.
Never going back.

Jul 3, 2014 1:24PM
Don't forget my very favorite practice.  When you have a deposit and checks come thru on the same day, they post the checks before they post the deposit.  Sweet deal if you can get it, I guess.  Remember, your Bank is in it for the MONEY, the bigger the bank, the less likely they are to see you as a person.  Bottom line, keep your checkbook balanced!!
Jul 3, 2014 12:47PM
It's amazing that people are so stupid. But then again, look at Washington.
Jul 3, 2014 2:46PM
If you don't have the funds in your account then you should not be writing a check. Period. The banks can charge whatever fee they want to charge and you should feel lucky if they only charge you an overdraft fee when they could press charges for writing a bad check. If you don't like the policy then don't overdraw your account. It is the account holders responsibility to balance their own checking account, NOT the banks.
Jul 3, 2014 1:10PM
What do you expect in a country that graduates illiterates who can barely print their name and couldnt write a coherant 10 word sentence if their life depended on it.
Jul 3, 2014 3:30PM

I work as a banker. I open people checking accounts and deal with overdraft conversations for a living. Basically, half the people DONT LISTEN or pay attention to whats in their accounts.. why should they? since everyone is on disability its not their money so why worry? , the other quarter cant do simple math to balance their accounts and the rest make honest mistakes. its not a grand conspiracy, banks know people dont pay attention and they capatalize on it. just like how washington operates. and the obama administration operates. get used to it.


Bottom line, balance. Use the FREE services like mobile banking, atms, online banking so you can know whats in your account all the time. Remember the checks and monthly debits you have coming out. Its never the banks' fualt you overdrew.

Jul 3, 2014 11:59AM
I belong to a credit union and recently my checking account was hacked.  I had signed the form that opted out of overdraft protection.  The culprit took about $500 out of my account 2 times in one day.  Since I only had $25 in my checking account my bank decided they would just take the money out of my savings account.  Instead of denying one or both charges because of insufficient funds they simply transferred funds for me.  I was angry but they claim that because the accounts are 'linked' they can do that even though I did not want the protection.  I asked them what is the point of having a checking and savings if they are linked?  Why should I bother balancing my check book?  Their response was that most people like it this way because they don't bounce checks.  Luckily I got my money back in a few days.
Jul 3, 2014 5:46PM
It's simple, borrowing over your limit is costly. If that is not acceptable then don't buy things when you don't have any money.
Jul 3, 2014 3:33PM
Theres a hidden message in those high overdraft fees' whis is if you dont have plenty of money we would rather not be bothered with the paperwork messing with you so if your going to overdraw you pay the piper.
.....good example of the okey doke and whiz bang inflicted on the masses to the tune of billions; meanwhile, they just can't figure out why the economy is increasingly looking like a sandwich with no meat in the middle.
Jul 3, 2014 1:54PM

The Bottom line with American banks is you cannot legislate criminality. If they outlaw one aspect of the overdraft fiasco, American banks will simply find a way around the law, and will continue to screw their customers like never before. Why, you ask? Because they are American banks, of course. They exist solely to steal your money a little bit at a time. Confusing terms? Of course the terms are confusing! That is exactly they way banks WANT their terms: hard to read, impossible to understand, shaky on the details. Criminal enterprises live on the margins of society; they rely on uncertainty and confusion to make their illicit profits. Amercan banks can never, ever provide clear, simple terms, because those terms are so awful that anyone competent enough to have a bank account would refuse to do so, because they would lose all their money to a criminal enterprise.

So, asking banks to provide clear, easily understandable verbiage for ANYTHING would be like asking the Mafia to provide a business plan for loansharking. Ain't gonna happen.

Only when bank presidents start swinging from the hangman's noose will anything ever change in the American Banking industry. Until there is a sense of justice in this country (also not holding my breath here) banks will do everything they can to rob us blind.

A viable alternative to putting your hard-earned money in an American bank would be to toss it into a pile and BURN IT.

Jul 3, 2014 5:47PM
I love how much talk (mostly by bankers) out there, on how the customer should take the responsibility to balance their check books to avoid a penalty. I find it hard to excuse the mocking self-righteous tone they exude. As if we never did the banks any favors when they were blatantly negligent in their finances causing a somewhat large over draft. Who paid when that happened?
Jul 7, 2014 10:06AM
it is clear than many people are not as responsible as they should be. however, how many businesses can defer giving you credit for payments for days after they have been received, but charge you in anticipation of an expense. how many businesses can change the rules almost monthly? how many businesses are regularly bailed out by the taxpayer? the congressional hearings in 2006 or 2007 would give people some insight into bank manipulations. it is not a level playing field. still, people must take more responsibility
Jul 3, 2014 4:24PM
total scam by all banks, eecu and I are at odds, I don't have OD protection, so when I hit my limit and I swipe my card and it doesn't work, the bank charged me 30 dollars, because they had to decline that transcation
Jul 3, 2014 1:37PM

Yeah, its simple. Banks are no longer your friend. Banks are no longer respectable companies in the community. Banks are no longer whom your turn to first. Small Local Banks are just as bad (and sometimes worse) and clearly they will charge whatever they can and will bend and even break the laws if they think they can.

Its simple. If you can't reliably keep at least a small cushion in my account, find another way. Pay in cash or use a pre-paid program or something. Don't allow them to rape you.

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