Debit Cards May Be Next on the Reform Agenda
There is a move that is quickly gaining momentum across the United States towards using debit cards and away from credit cards. Now one may think that using a debit card which relies on money that you have in the bank to pay for goods and services is the way to go as opposed to using credit cards which is borrowing other people’s money, but there most definitely is a downside.
Banks and debit card issuers make an enormous amount of money charging fees to cover overruns when customers exceed their balances. The fees usually run in the range between $30 and $35 and are set by the issuer of the debit card without any oversight or restrictions.
What is happening is that people are using their debit cards, which admittedly are incredibly convenient, as they would use cash when paying for small things like a cup of coffee, a movie ticket, a burger and a Coke and any other everyday common expense that we encounter throughout our day.
Now that all sounds well and good but the problem kicks in when we are unknowingly short that money in our bank account. When that occurs each and every time a purchases made without sufficient funds to cover it the bank charges an overdraft fee…. every single time.
So for instance, if someone fails to check their bank account and continuously uses their debit card to make purchases they are going to get dinged every time for the overdraft with new penalty fee. Think about that. If someone were to go say a week without checking their bank account, they could end up being charged overdraft fees for potentially dozens and dozens of purchases no matter how small they may be.
The banks, credit unions and financial institutions that issue debit cards are knowingly allowing their customers to exceed their balances because the fees are so lucrative. So lucrative in fact that in 2009 alone debit card issuers are expected to see $27 billion in overdraft fees from their customers.
Amazingly, with all the talk of credit card penalties and fees, that number far exceeds what credit card customers will be paying for penalties and fees. And with credit card reform in the air it’s only natural that debit cards warrant a closer look as well.
Industry regulators dating back to 2001 have warned of this practice but little has been done to curb the very lucrative practice of charging overdraft fees. That however, looks to change as regulators now plan to introduce a series of protections before the year’s end.
While no one is arguing that the debit cardholders should be responsible buying knowing full well what they have in their checking accounts in order to cover their spending, lawmakers still want to make sure that they are not being taken advantage of.
Protections proposed include requiring the permission of the cardholder to be enrolled in an overdraft program as opposed to automatically enrolling them. That means if someone uses their debit card but does not have sufficient funds to cover the purchase and do not have overdraft protection the purchase will simply not be authorized.
There are other forms of protection being proposed and it will be interesting to see how it all shakes out. Not surprisingly debit card issuers are rebuffing these efforts… so basically the fight is on. It has been reported that nearly half of the nation’s credit card issuers are making more from overdraft fees than they do in profits. Killing this cash cow can be potentially devastating for many of those financial situations.
Related Information:
- The Pros and Cons of Using Debit Cards Find out what the advantages and disadvantages of using debit cards are in this informational piece....
- Important Facts About Debit Cards Find out what a lot of people don't know about debit cards....
- Unexpected Bank Overdraft Fees To Be Eliminated Unexpected ATM overdraft fees are now prohibited by the federal government....
- Debit Cards Becoming Increasingly More Popular for Several Reasons See why debit cards are now preferred by more consumers than credit cards....