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Being declined at checkout trumps paying overdraft fees

Julie Sherrier

Imagine paying $49 for a $15 purchase. That’s what is happening every day with alarming frequency to thousands of checking account and debit card holders across the country who incur an average $34 overdraft fee for small-ticket items. In fact, according to a recently published research brief by the Center for Responsible Lending (CRL), “consumers are paying $17.5 billion in overdraft fees for $15.8 billion extended to them in credit every year.”

“Overdrafts are increasingly triggered by small dollar debit card transactions,” says the CRL. Of the 1,741 consumers surveyed, nearly nine out of 10 checking account customers would rather have their debit card purchases declined at checkout rather than incur an overdraft fee. Rather than declining the charges, the financial institutions allow the transactions to be processed and then hit the customer with overdraft fees.

Almost a third of the consumers surveyed are enrolled in a fee-based overdraft loan program where they are charged an average $34 fee for overdrafts. Those consumers also are more likely to earn less than $50,000 a year. In essence,  “their debit card functions as an extremely high-cost credit card,” says the survey.

The core group of consumers who are being slammed with these fees are repeat offenders who do not have a line of credit linked to their accounts nor a link to a credit card or savings account, which serve as considerably less expensive overdraft protection alternatives. “These consumers with multiple overdrafts were more likely to be lower-income, non-white, single, and renters when compared to the general population… and pay 71 percent of overdraft fees,” says the CRL survey.

These consumers want their checking and debit account issuers to offer them a choice of whether to accept or decline an automatic, fee-based overdraft loan program as many of these consumers are automatically enrolled in these programs when they sign up for a checking account. The survey reports that the financial institutions issuing these accounts often don’t volunteer lower-cost overdraft alternatives.

The CRL is conducting a series of surveys on overdraft protection to help shape policy and regulatory changes as fee-based overdraft loan programs captured the attention of Congress last year, resulting in a hearing and a House bill demanding reform on the most abusive practices.

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  • Brock Qualls

    Credit cards are a touchy issue as is the war. What is hidden is the amount of money that all the banks are making on overdraft fees. Back in the 80’s, the banks would extend your time to put money back into your account without a fee. We were all treated as people not a number as we are now. The question is Credit cards vs Debit cards. The focus area or crime lies within the college market. Credit cards get slammed by media and by locals in each town all over the country. The college marketing industry has cleaned up it act over the last 2 years for the most part – minus the crooks that run the marketing companies such as Eltie Marketing Group and Alloy Marketing, that Citibank, Chase and Discover hire.
    Because of all of the negative advertisement toward credit cards more and more students are opting to Debit cards. Debit cards are terrible. How many people have gotten at least one over draft. It is not alway our fault either. When we use a debit card we are counting on all the businesses that we dealt with that day to follow standard procedure. It is not uncommon for a mom and pop store to misplace the reciepts for that day and all of a suddent find them two weeks later and put them through throwing off our account and sending us in a free fall for overdrafts, especially college students. $25 dollars is alot of money. It goes a long way. If something like this happened to us (with the reciepts) We would be screwed. Especially considering we make small $2 to $8 dollars purchases each day. Think about it. We all are making the banks rich.
    If it is the people’s goal to be a stronger and wiser country. Let’s do it with a cash is king mentality. If you have to learn the banks way than learn on a credit card. At least when you make a mistake it is only for a small 1% interest rate. We should be preaching cash until we graduate, be responsible. We should be bashing the debit cards, not the credit cards. I read somewhere that 80% of the student population has a debit cards I will bet you that 80%of that 80% has made a mistake either there fault or not and paid a $34 fee. We should all write our congressman of of state and Attorney general office and ask for a 24 hour grace period to put on to the banks to give the customer a chance to put the money back in the account. We should also require that the banks call us and remind us that are account is overdrawn and to put the money back into the account to avoid overdraft. Please let’s at least make the banks earn it. If they forget to call then we need not worry about the overdraft. For these reasons, Credit cards are the best way to learn the game of economics. Credit cards are great for establishing credit. I think that it is imperative for a student to learn early about the pros and cons of credit. Is it not better to make a mistake early when mom and dad can lend some emotional and sometimes monetary support, compare to being in your late 20’s and getting a card with a limit of 10,000. College cards are for a start up of $500 to $1000.

  • JS

    It’s no laughing matter; banks are being abusive. I am told by a friend who worked at bank that bank policy is to record deposits after they record the checks received against an account, thus increasing the chance of overdrawing an account. Furthermore, banks will charge a fee to the receiver of the check as well, increasing the amount banks profit from.
    It used to be that banks wanted your business so that they could use your money to lend it to someone else. This is still the case, however, now they have found new way to gouge the consumer – fees. What really irks me is that banks want you to believe they are your friend.
    In a recent overdraft incident with my account, Amtrust Bank, the bank I did business at, accrued overdraft charges against my account for $300 and charged the receiver of these drafts a $10 fee, totaling $50, since the receiver’s account was also held at Amtrust Bank. Disgusting right? The interesting thing is that most of the checks had not been signed and were still processed by Amtrust. Ironically, these check were the cause of the overdraw.
    One other practice used to cause havoc with your account is to hold checks. If a check has an out of town routing number (bank could have a local branch), but be based some where else, your funds will not be deposited into your account for 7 to 8 days. With the technologies available to anyone, particularly banks, I find it hard to believe that this is necessary.
    Maybe it is time to stand up and not take it any more. Tell your banks you will not stand for it and insist that they remove the charges. In many cases, the bank will remove some of the charges.
    I asked my bank to do just that and they did. After I knew the money was back in my account, I called the bank manager and closed my account. This was my revenge.
    The way I see it is, by leaving my account open, they would continue to benefit from my business and ultimately the bank would make back the money. By closing my account, they now have to recruit some other poor sole to pay for the refund by spending thousands of dollars in advertising.
    I am not so naive as to believe that I will change anything by my action alone, however, if more people stood up to the status quo, things would have to change!
    Write to your politicians and tell them they must act to protect the consumer’s rights and insist that the already wealthy banks, who have reported record earning the last several years, stop gouging the American consumers and in many instances destroying their livelihood.

  • Darlene Palatine

    Is there a minimum time given for a bank to notify you of a reduction in your credit limit? I have overdraft protection on my checking tied to my credit card with the same bank. I had a $5,500 limit of which 50% could be utilized for cash advance, (overdraft protection), at a cost of $20 per transfer plus prevailing cash advance interest charges until paid, (25.99%). I had an automated debit come through for a reoccuring payment and a transfer was not made. I was charged an overdraft fee and the item was returned. I called my bank on 4/27/10 and they told me my credit line was reduced by more than 50% and a letter had been mailed to inform me on 4/24/10, (I have never received this notice). Can they actually give me 48 hours notice?