Banks Fatten Up On Overdraft Fees
Do you want to know how much banks, credit unions and other financial institutions love debit cards? According to the Center for Responsible Lending the answer is quite a bit. There has been a 35% increase in overdraft fees since 2006 and they now total nearly $24 billion.
Believe it or not each year 50 million Americans will be overdrawn on their checking account at least one time. Think about that. There are 300 million people in the United States and not all of them have checking accounts so we are talking about an incredibly high percentage of people, at least one in six, that are overdrawn at least once per year.
Of those 50 million people more than half of them are paying five or more overdraft penalties during any one given 12 month period. Overdraft penalties, or fees if you prefer, are charged when there are insufficient funds to cover purchases.
The sharp rise in overdraft fees can be attributed to a greater reliance on debit cards. More and more Americans are keeping their credit cards in their pockets or canceling them altogether. In their place they are using debit cards and cash.
As you may imagine the issuers of debit cards are more than happy to process purchases even though the customers do not have sufficient funds to cover them. That’s how they fatten up on overdraft fees.
They could easily deny the transaction due to insufficient funds and in some cases they will do just that. But the standard practice at the moment is to automatically enroll debit cardholders into their overdraft protection programs.
There are reforms being discussed including having the customer opt-in to overdraft protection programs as opposed to automatically and enrolling them.
Another reform that has been recommended is to make the overdraft fee somehow dovetail to the actual expenditure. In other words, as things stand now it can be a simple one dollar overage but that may trigger a penalty of up to $39.
Yet another proposed reform that makes sense is limiting the number of fees that can be imposed on any one specific customer during a one-year period before that customer is forced to enroll in a reasonably priced overdraft protection program.
Only time will tell how many of these reforms will be adopted but there is an unmistakable anger that is building amongst consumers as these fees continue to pile up. And yes, many of these companies are the same ones that issue credit cards so they are not exactly beloved to begin with.
Related Information:
- Unexpected Bank Overdraft Fees To Be Eliminated Unexpected ATM overdraft fees are now prohibited by the federal government....
- Higher Credit Card Fees Introduced By Banks The trend is not good for credit card account holders as banks continue to raise fees on them....
- Debit Cards May Be Next on the Reform Agenda See what Congress has in mind for reforming the way debit cards are handled by the issuers....
- Credit Card Issuers Getting Creative with Their Fees Credit card issuers are finding new ways to charge their account holder's fees...