This debit card overdraft problem is eerily reminiscent of the subprime mortgage fiasco, which nearly imploded the U.S. economy in 2008. Mortgage lenders made unsuitable loans to low-income families knowing full well they didn’t have the means to make the payments.
Unfortunately, there was a financial incentive for everyone along the mortgage lending pipeline to continue to issue subprime loans.
Now, with debit cards, there is a financial incentive for banks and credit unions to sign a certain segment of debit card users up for overdraft protection services — so that the lenders don’t lose a large source of revenue.
The more customers screw up their accounts, the more overdraft revenue a bank collects. All sorts of alarms should be going off here.