Have you ever used your bank debit card to buy something thinking you have enough money in the account and then found you got hit with a whopping fee because you didn’t have enough money but the bank passed through the transaction anyway? I just recently had this happen to me and it wasn’t pretty.
As Herb Weisbaum reports on MSNBC, most banks are now “automatically” enrolling their customers “in an overdraft protection program” and some consumers are finding the banks won’t let them drop the service. What happens, is the banks let “you spend more than you have, loans you the difference (up to a certain amount) and hits you with a hefty fee.”
Consumer groups hate these automatic bounce protection programs. They refer to them as overdraft loan programs because that’s what’s really going on here. The banks are giving you a short-term loan to cover the overdraft at a sky-high interest rate.
“The big banks are making a ton of money on this, so are some credit unions,” says Ed Mierzwinksi, consumer program director at U.S. PIRG. “This overpriced rip-off service makes no sense to anyone but the banks.”
Jean Ann Fox, director of consumer protection at the Consumer Federation of America, just laughed when I told her bankers call automatic overdraft protection a “customer service.” She says banks are “taking advantage of customers” by letting them overdraw and then slapping them with “gotcha fees” for each overdraft that’s allowed.
The Federal Reserve has proposed new rules for “how banks should handle their overdraft service for ATM withdrawals and debit card transactions.
There are two options on the table: opt-in and opt-out.
Opt-in would truly reform bank practices. It would require them to get your permission in writing before you could be enrolled in the overdraft program. Opt-out keeps things the way they are. […]
Needless to say, the banks prefer the “Opt-out” rule because they don’t want to mess with the status quo that makes them more money off their clients:
The American Bankers Association says not only is automatic enrollment better for people; it’s what people want. “Customers have demonstrated this is their overwhelming preference” says the ABA’s Feddis.
Consumers Union claims it’s just the opposite. In a letter to the Fed, it cites a poll by Consumer Reports National Research Center. The poll found “an overwhelming number of consumers want a real choice when it comes to overdraft programs.” Two-thirds said they prefer to expressly authorize overdraft coverage.
The poll by Consumers Union found:
The survey found many people do not understand how automatic overdraft programs work. Consumer Reports found that 39 percent of the people thought their bank would either deny a debit transaction or allow it to process without charging a fee if it would overdraw the account. Nearly half of those polled (48 percent) thought their ATM card would not work if they tried to withdraw more money than was in their account.
“If banks believe the overdraft programs are truly beneficial, then they should be required to persuade their customers to sign up before they can charge them such high fees,” writes Consumers Union lawyer Zeichner Bowne.
Just last week, Congresswoman Carolyn Maloney (D-NY), member of the House Financial Services Committee, introduced a bill to help protect consumers, the Consumer Overdraft Protection Fair Practices Act. H.R. 1465 “would require banks to give customers a warning that their withdrawal from an ATM or purchase with a debit card is about to trigger an overdraft,” and then the “customer would then have the option to stop the transaction or accept the overdraft service and the associated fee.”
Weisbaum has a lot more to say about this overdraft mess. I recommend reading the whole piece.
If you are like most consumers fed up with the practices of banks and what happens with your money, Weisbaum says, speak up now because time is running out:
Consumer groups are doing their best, but the regulators need to hear from you. Time is running out. The comment period ends next Monday, March 30. Contact the Federal Reserve right now and let the Board know you want the opt-in rule. It’s just silly to make you cancel a service you didn’t ask for. If bankers are so sure customers want this high-priced overdraft protection they don’t have anything to worry about.
The Center for Responsible Lending web site has more information on bank overdraft fees and an easy way to comment to the Fed.
To comment directly to the Fed send an e-mail here . The subject line MUST include “Docket No. R-1343.”
Or fax your comments to 202-452-3819.
Don’t let banks continue to rip off their customers. It’s bad enough we’re bailing them all out after their gross neglect caused much of the economic crisis. It’s time to let them know, enough is enough.