Banks keep piling on the overdraft fees
A survey shows that banks are still lugging in big bucks off our mistakes. It doesn't have to be that way, but it is up to you.
This post comes from Lynn Mucken at MSN Money.
Despite what all those "we are family" commercials might lead you to believe, banks exist to make money, not friendships. And if a little sleight-of-hand maneuver helps the bottom line? Well, you know: Business is business.
Banks don't steal our money; most of them merely trick us into giving it to them through things like overdraft fees that can be incurred by letting you write checks, use debit cards and withdraw money from ATMs without alerting you that you are overdrawn. It's perfectly legal and quite lucrative -- overdraft fees bring in about $1.77 billion a year.
Regulations created last year to protect bank customers from being unknowingly enrolled in punitive overdraft "protection" programs appear to have failed. About 100 million Americans willingly opted in to those programs when finally given the choice, and overdraft fees remain just as steep -- averaging $35 a whack with the nation's largest banks.
You can see the cold facts by grinding through a Consumer Federation of America survey of the nation's 14 largest banks, or skim a solid nuts-and-bolts version by The Associated Press, but this sassy report by Marlys Harris of CBS MoneyWatch is a lot better reading, mostly because she uses terrific adjectives. Some excerpts:
A year ago, the Federal Reserve started requiring banks to get customers' explicit permission to overdraw their checking accounts when using debit cards. Now, if you don't opt in to the bank's overdraft program, you can't get the dough -- or the goods if you happen to be using your debit card to buy stuff at, say, Walgreens or Target. That could be embarrassing, especially if the sales clerk has the bad grace to sneer, but at least you escape the fees. Nevertheless, … frenzied bank marketing campaigns preying on consumers' dread of humiliation at the cash register induced 75% of American checking account holders -- about 100 million souls -- to sign up for the costly service.
I don't know how much it costs when a customer overdraws an account, but given that such a transaction is electronic, I can't imagine that the bank pays more than a few pennies. … And, there's no cost to collecting the money. Banks merely vacuum the fees out of your account the minute you make your next deposit.
But you are using the bank's money until you replace it. That's worth something, right? Well, I don't know about you, but my bank savings account is now paying 0.03% a year. My MBA son Max calculated that the (annual percentage rate) for a $35 fee on that $20 overdraft for maybe two weeks comes to 4,550% a year. You could probably get a loan with much, much better terms from your friendly neighborhood loan shark or predatory payday lender.
There was some good news in the Consumer Federation report. Some of the nation's largest banks -- including Bank of America, Citi, Fifth Third and Wells Fargo -- have stopped, altered or announced they plan to change the practice of processing the largest overdraft of a day first, which allowed banks to slam you with overdraft fees on several transactions instead of just one.
Here's how that works: You start the day with $100 in your checking account. On your errands, you use your debit card to buy $9 worth of cards at Hallmark, $42 worth of T-shirts at Wal-Mart, an $8 lunch at Subway and then finish off with $103 worth of stuff from Costco. If the bank processes the largest purchase last, you would have one overdraft fee of $35. If it processes the biggest first, you're slammed to the tune of $105. Post continues after video.
The banks are not changing out of compassion, however. In February, Bank of America agreed to a $410 million settlement of a suit alleging deceptive practices that created excessive fees for overdrafts. Wells Fargo had to return $203 million to customers as a result of a lawsuit. Other banks have also been sued.
According to the Consumer Federation report, many smaller banks are continuing with business as usual, so here are some basic thoughts on how to avoid painful overdrafts. Warning: Every one of these requires fiscal discipline. Only you can save yourself.
- Make sure you have the money before you shop. This is a version of the Chris Rock routine on how to avoid getting messed with by the cops. It starts with "Don't do the crime."
- Balance your checkbook. This seems pretty basic, but a lot of people don't.
- Reject the automatic overdraft coverage. The banks frame this as "protection." It isn't. All it does is allow you to be an undisciplined spender, with painful consequences.
- Use a credit card. You will have a big bill at the end of the month, but you will be charged only for what you bought. Then pay the bill in its entirety.
- Spend only cash. What an outdated concept, but it does work. Sliding a card through a machine is magic. Watching $100 in twenties slip away in two hours is reality.
- Bury that embarrassment. It only hurts for a little while to have your card rejected, but paying $100 in overdraft penalties has ripple effects.
- Sign up for real overdraft protection or find a good bank. They are out there. Back in May, I brainlessly wrote a check for $6,000 to pay my quarterly $2,000 IRS payment. Unfortunately, I had just $5,960 in my checking account. On the day that check was processed, so too were a check for $45, another for $424, plus I had spent $90 using my debit card. My bank processed the smaller withdrawals first, leaving an overdraft of $508.38. It promptly "loaned" me that amount, then charged me $509.09 three days later when my paycheck was automatically deposited. My cost: 71 cents.
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There is no excuse for spending more than you have. If you do it, it costs you, pure and simple. If you can't balance your checkbook you probably shouldn't be allowed to have one. If the debit card is causing you to be irresponsible, throw it away. Banks are evil but this isn't one of their dastardly plans - this is consumer stupidity - don't blame the banks for that.
When a bank customer runs short of funds, the bank hits them with fees.
When the bank runs short of funds, the taxpayers (customers) simply bail them out.
I was a Vice President at an Alaskan bank during the 1980s so I had access to seeing how decisions were made. In our case, one of the Executive Vice Presidents was in charge of increasing bottom line income. She was brilliant at discovering new ways to hose the customers. We had an outrageous over draft fee which produced significant bottom line income. The government finally demanded that we demonstrate some valid relationship between our incurred expenses and the fee we were charging. You should have seen the furor that went on within the bank. First there was a massive wave of outrage at the government, or any one else, questioning the banks' right to do whatever it wanted. When it became apparent that the regulators weren't going to back off there was a frenzied race to prove that our cost of a bounced check was actually even higher than what we were charging. Every department was directed to report back as to how they were impacted by bounced checks. I managed the Consumer Lending activity and someone writing an NSF check generally had absolutely no impact on our activity. I reported that fact and was immediately told to go back to work until I found something.
We worked on justifying things (a polite way of saying "lying in our teeth") and eventually the regulators were apparently appeased and troubled us no more. The NSF fee never went down and has been increased over the years. With modern technology I'm sure the banks, all banks, have become even better at picking the customer's pocket. If anyone actually believes that any bank actually care about anything but grubbing every possible dime out of its' customers, they ought to quit smoking that stuff.
How about people be responsible and quit blaming the banks for their problems? The article clearly states that 100 million people opted in to overdraft fees. I wouldn't care if I was denied at the cash register for not enough funds. The bank is holding your money (most of the time for free) so when they provide a service such as borrowing money from them they can charge. I bet if they charged less they might make the same or more because people wouldn't balk so much at $15 per overdraft.
I can only shake my head in disbelief as people whine about banks charging them for taking money from an institution whose sole practice is to find every possible way to take money from you.
If you do not have the ability to manage your money (and it does not take much more than a 2nd or 3rd grade level in math to add/subtract) in a basic checking account, then maybe you should think twice about even keeping money in there. Open an account at a bank/credit union, put in the minimum to keep it open, and CASH your checks and use CASH for your purchases and not a debit card. Very few excuses for people not knowing at any point in time what their balance in their account(s) are. Online websites, mobile phone access, ATM inquiries...
Most of these are exampled by the writer. I start with $100 in my checking account, then I go out and spend $250 on stuff I may/may NOT need, then I sit and whine and complain that the bank dinged me a penalty for taking their money. Think of it as getting an automatic pay day loan without having to go to a payday loan store. Would you expect THEM to give you money for free? But these people who yell about bank fees will probably happily pay $75 to a pay day loan service for $500.
All the people here who are commenting about the stupidity of not being able to balance a check book are forgetting a couple of important things.
1. Even the best mathmatician can make an error. Millions of people who bounce a check are not stupid, they have just made an error. If you live pay check to pay check like many American's do, slip up by 1 cent and the order in which a bank processes your incoming debits/checks can cost you hundreds of dollars. They tell you they process the largest debit/check first, because most customers want it that way. We all know this is not true, it is a script written for customer service reps to handle customer complaints. Truth is, just like the article says, they process the largest debit first so they can make additional fees off your errors. I don't mind paying for an error that is my fault, I just want to pay a fair amount.
2. The banks are using all of my money, your money and everyone else's money, all day long every day to make money. They invest it. And that's fine, but I don't want to hear them cry about not being able to survive if they can't cheat their customers out of money by lying about fees.
Moral of the story..... run, do not walk, to your nearest credit union and take all of your money with you. I did. I don't have much money but they treat me like I am a millionaire. They process debits/checks in real time, so their customers do not get hosed. After 32 years of being a "bank" customer, I left and have never been happier.
"Back in May, I brainlessly wrote a check for $6,000 to pay my quarterly $2,000 IRS payment. Unfortunately, I had just $5,960 in my checking account. On the day that check was processed, so too were a check for $45, another for $424, plus I had spent $90 using my debit card. My bank processed the smaller withdrawals first, leaving an overdraft of $508.38. It promptly "loaned" me that amount, then charged me $509.09 three days later when my paycheck was automatically deposited. My cost: 71 cents."
I'm thinking she made this story up because my experience is that every bank on the planet charges a "overdraft protection fee" usually $15 to $20. I know because I have overdraft protection with my checking acct and being incensed with this fee I looked for another bank or credit union that did not charge this outrageous fee. I could not not find one in my area.
To the Author: If you have a bank that does not charge you and overdraft fee of $15 or $20 or more, please share with us the name of that bank. Otherwise we are left thinking you are making stuff up for your story.
Even when you are responsible banks treat you like crap. My experiences with large banks are the worst...
My bank was acquired and they opened a credit card for overdraft protection without notifying me or asking my permission. Well I never used the overdraft protection and I never opened the credit card statements thinking they were junk mail. However, they eventually placed a $25 annual fee on the card which I did not know about and caused a bad credit report. I easily got it reversed through the credit agencies because even I know you cannot open a credit card for someone without a signature. I guess it's OK for banks to engage in illegal practices. Now they deduct the annual fee directly from your checking accnt - how thoughtful!
On another occasion, my address changed so I called the bank to change my address. Unfortunately my bank did not change the address on my credit card. I soon realized this and tried on many occasions to try to get it changed (always got an answering machine) but it was too late and it went on my credit report. However, I had proof that I had requested an address change since my new address was on my bank statements. I pleaded with the bank to reverse the bad credit but they refused and were very nasty about it. I got it reversed through the credit agencies but only after many hours of letter writing.
Finally, I had one major credit card company punch in a credit card payment as $10 instead of $1000 as was written on the check. So I got a $25 late payment charge since the amount was insufficient. I called and asked them to remove it but they refused it even though I had the cancelled check that was written as $1000 (but cleared as $10). I clearly remember the clerk treating me like an idiot even though the mistake was theirs.
So IMO the banks are scum and I won't give them one extra dime if at all possible.
For example, my bank actually sent me a notice in the mail stating that they will NOT honor any checks, check card transactions, debit card transactions, etc. unless I specifically called a separate, specialty toll free number or returned the form stating that I want to Opt-In to allow my bank to approve charges that will overdraw my account and I will incur a fee. If I did nothing, then my bank would not approve charges that would overdraw my account and I would not incur a penalty fee.
So at this point, as far as I am concerned, if anyone gripes about an overdraft fee after having to exclusively Opt-in to do so, I really have little to no pity for them. They chose this feature. This is not predatory because no one is being baited into believing there will be no penalty, it is clear as day.
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