Last year around this time, the Federal Reserve started enforcing new rules regarding overdraft fees and debit cards.
These new regulations were supposed to keep banks in line and help consumers.
Banks didn’t like the changes because it cut into revenue that they say is used to fight fraud. But one year later and it looks like there are still some issues. A survey of the 14 biggest banks in the United States indicates overdraft fees are still high.
In fact…some banks have even added additional penalties to make up for the money they lost because of the Fed’s regulations.
Last July, you probably got a letter from your bank asking if you wanted to “opt-in” for overdraft protection on everyday transactions using your debit card. The regulations did not affect overdrafts on personal checks.
Investigative consumer reporter Jenn Stratham explains why opting in probably isn’t the best idea…
“While overdraft protection sounds like a good thing, it’s a bad thing for consumers and a good thing for banks. It’s a money maker for them as they’ll allow a $3 charge go through even if you don’t have funds. So, that $3 cup of coffee costs you $30.”
Of course that’s because your bank will charge you a fee for overdrafting your checking account and covering the cost for you. It’s sort of like a loan, which using the cup of coffee example, has a REALLY high interest rate.
People who decided to “opt-out” of debit card overdraft protection would simply have their card denied at the cash register.
The Consumer Federation of America found that the 14 largest banks still charge an average of $35 per overdraft. That’s the same amount from the 2010 study.
Of course, the new rules did not require banks to lower overdraft fees. Why would you expect that to happen when banks were already expecting to lose money because of the changes? Realistically, you’d expect overdraft fees to go up in order to cover the cost.
Still, many consumer advocates say things are out of whack when it comes to overdrafts.
“The fees are out of all proportion to the typical overdraft,” says Jean Ann Fox of the Consumer Federation of America.
Should you be charged $30 for overdrafting your account by $3, or should the fee a bank charges you correspond to how much you overdrew the account?
Banks certainly look for every way they can to squeeze money out of people who don’t keep track of the balance in their checking account. Some financial institutions have a tiered system that charges you higher and higher fee as you swipe your debit card and continue to overdraft throughout the day.
Others reorder transactions and process the largest ones first so that they can charge you for more overdrafts.
If you don’t reconcile your checking account speedily, many banks will charge you additional fees.
The easiest way to avoid all of these fees is to opt out of overdraft protection for you debit card. If you didn’t choose to do so when your bank sent you a letter last summer – you can still contact them at any time and cancel the protection.
A better way to protect yourself from overdrawing your checking account is to link it to your savings.
The folks at the CFA say the government should take things a step further when it comes to overdraft fees. Fox says financial institutions should be required to process fees in a way that costs people as little as possible, and thinks debit card overdrafts should be eliminated.
“Regulators should prohibit banks from manipulating payment processing order to drive up overdraft fees and should require banks to offer consumers the lowest cost overdraft coverage for which they qualify. Banks should be prohibited from charging for overdrafts triggered by debit cards that can be denied at no cost to consumers.”
What do you think? Should something more be done to protect consumers from overdraft fees, or should it be your individual responsibility to opt out of the protection and keep track of the balance in your checking account?
Leave a comment below and get a conversation started!
Image: worradmu / FreeDigitalPhotos.net
+Kasey Steinbrinck writes regularly on personal finances and the U.S. economy for Check Advantage. Visit them today and view their cheap personal checks including a big collection of Basic Personal Checks. Contact Kasey to request free content for your website or blog.
