More banks limiting overdraft fees
Maybe your bank will let you opt out of overdraft protection.
We’d venture that overdraft fees are the most hated fees charged by banks, and they charge a lot -- an estimated $36.7 billion last year, USA Today reports.
Bankaholic explains how overdraft fees work:
It doesn’t matter whether they’re buying a mink coat or a $4 latte at Starbucks. And to help them charge as many overdraft fees as possible, the banks deduct the largest purchases on any given day first to drain accounts as quickly as possible.
Now, facing possible restrictions from Congress and the Federal Reserve, more banks are putting limits on the despised fees, which are often in the neighborhood of $26 to $39.
Here’s what you can expect in the near future:
- As of Oct. 19, Bank of America won’t penalize customers who overdraw their accounts by less than $10 in a day -- unless you don’t pay up within five days -- and will limit the amount of overdraft fees to four a day (the current limit is a whopping 10). It will become easier for customers to opt out of this “service” -- which means your card will be denied if you're about to overspend. BofA will also notify customers that they’re running out of funds. Starting in June, new customers will have to opt in for overdraft protection.
- The award for being most considerate of customers should go to Chase, which, starting in the first quarter of next year, will process transactions in chronological order, rather than the largest one first. That’s big. And it won’t allow overdrafts unless a customer has opted in for the service. If you opt in, no fee will be charged for overdrafts of less than $5, and Chase will charge fees on no more than three overdrafts a day.
- Wells Fargo won’t assess an overdraft fee for charges of less than $5, and will reduce the number of fees charged per day from 10 to four. Customers will be able to opt out.
- In the first quarter of 2010, U.S. Bank will no longer charge a fee on an overdraft of less than $10, will set a limit of no more than three fees a day, and will establish an annual limit. Customers will be able to opt out.
- Starting Jan. 1, Regions Bank won’t charge a fee if the overdraft is less than $5 and will limit the number of overdraft fees to four a day.
This list is not complete. For details on whether your bank is changing the rules and when they take effect, contact the local branch. Ask questions. Some of the rules apply to debit card use but not to paper checks.
Luckily, the vast majority of bank customers don’t overdraw their accounts often, if at all. They keep a tally of what they spend or a healthy cushion in the account. But so-called overdraft protection is such a black eye on the industry that, USA Today observes, one payday lender advertises that its product can be cheaper. (That can be true in limited circumstances.)
(As an aside, we know someone who turned to a car title loan after a string of overdraft fees put him in a deep hole -- a bad, bad move. Luckily a friend with deep pockets offered a personal loan to help him dig out of that mess.)
What else can you do to avoid hefty overdraft fees?
- Opt out of your bank’s overdraft plan. If you can’t, find a financial institution that will actually decline the withdrawal if you’re out of money, writes Shannon Buggs at the Houston Chronicle.
- Link your checking account to a savings account that can pay up if you were overly optimistic about your balance. “This used to be a sensible and free service banks recommended to customers and you may find some small banks that still offer it,” Shannon says. Some banks charge a small fee when this happens or interest on the amount removed from your savings account.
- Set up alerts. “PT” at PT Money said many banks will text or e-mail you when your balance is low.
- Go cash only. “This isn’t for everyone,” PT says. “But if you have a problem constantly spending more money than you have in your bank, you likely need a stronger control.”
Are you impressed with the changes that banks have in store? We’re not. As David Lazarus said at the Los Angeles Times, “My feeling is that if banks truly want to treat people with respect, they should use all the technological means at their disposal to prevent customers from overdrawing their accounts.”
Here’s what Bankaholic recommends:
Congress should enact sensible rules that require customers to opt in (not allow them to opt out) of overdraft protection, force banks to post charges in chronological order, and limit the number of overdraft fees they can charge.
However, if Congress acts, brace yourselves: You can expect the banks will find other ways to get your money, such as doing away with free checking accounts or requiring a minimum number of monthly debit card transactions, so they can collect more fees from merchants who accept the card.
Published Oct. 5, 2009
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