The Latest on Overdraft Fees
The Center for Responsible Lending is out with a new report this week that finds 50 million Americans overdrew their checking accounts at least once in a 12-month period and 27 million incurred five or more overdraft fees, also known as non-sufficient fund (NSF) fees. Banks and credit unions collected $24 billion in overdraft fees in 2008, which ballooned more than 35 percent between 2006 and 2008.
A separate report released in August by Moebs Services estimated Americans paid $38 billion in overdraft fees, double the level of 2000 — and that just 10 percent of consumers paid the bulk of the fees.
I’ve been writing about this issue since 2007; see “Less Than Zero: How Overdraft Fees Can Clean You Out” and ”Your Bank May be Gouging You on Loans You Never Requested.”
While regulators have been asleep at the wheel on this issue, at least certain members of Congress were paying attention. More than two years ago, I wrote about a House bill sponsored by Reps. Carolyn Maloney, Barney Frank and Julia Carson, that would require banks to get a customer to opt-in to overdraft protection rather than extending it without permission.
In mid-September, following the release of the Moebs Report, Senate Banking Committee chairman Christopher Dodd, D-Conn. (finally!) said he would draft companion legislation. (Take a look at who Dodd’s major campaign contributors have been and it may explain his procrastination on the issue. Hint: It ain’t the account holders being socked with high fees.)
The data – and the growing threat of new legislation to curb overdraft practices — has prompted several banks to change their policies. Beginning October 19, Bank of America says it will allow customers to opt-out of overdraft protection, and it limit overdraft charges to four items per day on overdrawn balances of less than $10.
For its part, JP Morgan Chase will eliminate overdraft fees for debit cards unless customers choose overdraft protection, and limit the maximum amount of overdrafts per day to three from six. Chase will also drop its charges for overdrawn balances of less than $5.
Meanwhile, fed up consumers are suing the banks. My 2007 story described how banks will manipulate the order in which they process checks to maximize the overdraft fees incurred. A New Jersey man this week filed a class-action suit against PNC Bank over the practice.
Here is a previous post on how to avoid overdraft fees, and one on how to figure out what you’re paying on an APR basis for your overdraft “loan.” (I show how someone can pay 3400 percent interest on a two-week “loan” of $130.)
If you have overdraft “protection,” call the bank and see if you can opt-out. This may result in embarrassing moments at the cash register when a debit card is rejected for insufficient funds. But maybe that’s just the kick in the pants someone needs to get a better handle on their finances.
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