Fed Takes Away Banks' Debit Card Overdraft Fee "Cookie Jar" - About Danged Time

Yes, the banks are responsible for people overdrafting their accounts.

This situation has riled me for some years. The whole reason my son got a debit card was so that he WOULDN'T be able to overdraw his account. Worked fine until about four years ago, when the banks suddenly said "Oh, we'll do our customers a FAVOR, and let them overdraft on debit cards! We'll just charge them $35 every time they spend a dollar for a coffee on the road! After all, it's about the CUSTOMER'S CONVENIENCE!"

Sure it is - like the Education Empire saying that doubling their budgets every five years is because "It's For the Children!"

Dan, of course people are responsible for overdrafts on their bank cards. That's why my son got a debit card, not a credit card. Because originally, debit cards COULDN'T BE OVERDRAFTED.

What did the banks do? Figure out a way to reap millions in profits from the most vulnerable group of customers... kids - those who are most unlikely to keep close track of their bank balances.

Are kids stupid with money? Yes.

Are the banks still vultures, nonetheless? YES.

A fool and his money are soon parted

Kids are dumb with money.. at least most of them. Just like other things, they grow out of it, eventually. It's part of being young, and doing stupid things.

My son's debit card was originally overdraft-proof, and that's the way we wanted it. If the money wasn't there, he didn't get to make the purchase, and we both knew it when he signed up for the card.

Then the banks changed the rules midgame, because they recognized an "easy mark" with that market. My son tried to find another bank with a non-overdraft debit card, and guess what? It seems all the banks had gotten the same memo on how to fleece their customers.

Just because something is legal doesn't make it right.

I'm glad the Fed is moving to make overdrafts on debit cards an "opt in" situation. That would have been the fair thing for banks to do, from the gitgo.

You can't overdraft cash.

Plastic, of any kind, encourages spending. All the studies show it.

Debit cards were originally created to be plastic that WAS cash. Under the original rules, if the cash wasn't there in the account, it couldn't be spent.

In fact, that feature was the major original marketing scheme for debit cards, because folks who couldn't get a credit card could get a debit card... BECAUSE the cards were tied to cash-only. There were increasing numbers of stores that wouldn't take checks, but they would take a debit card. That was a prime selling point for the cards.

The banks changed the rules, not the consumers.

Gee, sounds like a $35 overdraft should happen only once, first time is a learning experience second time is a mistake. I haven't used an ATM in awhile but don't you can't you get a balance prior to withdrawal, or at least after the transaction. It would be nice to have the choice up front although not sure how many would opt not to have overdraft protection.

I think there are plenty of people would happily have opted out when the bank changed the rules - but consumers weren't given that option.

The reason? Banks knew that many customers would opt out, and they'd lose the fee revenues.

Yes, one can get a balance at an ATM, but not at stores and gas stations. Folks in need would use the card, the banks reaped another fee, sometimes in error. That didn't matter, however - getting the fees removed took time.

The banks knew that a certain percentage of people wouldn't take the time on the phone to contest the fees, and they reaped plenty as a result. Same as the credit card companies, when they suddenly change the due date to an earlier day, and oops, now you owe a late fee. If you don't take the time to contest the charge, they win. They know that a lot of people won't protest, or don't have the time.

It's not fair dealing. It's usury, scalping, and any other nefarious financial word you care to use, plain and simple. If you or I did that with our customers, we'd rapidly lose them to another business.

However, since all the banks were doing it, consumers didn't have that option.

Loansharking comes to mind. Can't dispute your case Naran that is why we got rid of CC years ago, it is a rigged game. But like I said I can see getting burned once but more than that I cannot blame entirely on the banks, there has to be some personal responsibility for borrowing money you don't have. Were the fees to high, you bet, but if people were so uninformed as to keep overdrawing then why is it the banks fault? Should they just say no problem Naran we are sorry you didn't have the money to buy that item here is an intrest free loan.

Originally, the debit card would simply decline if there wasn't enough money in the account. No overdrafts were possible with the original debit cards. There was no "interest free" loan from the banks.

The other thing the banks did when they changed the rules is to charge a separate $35 fee for EACH overdraft.

Let's say your direct deposit paycheck was a day late, and in the meantime, you had purchased gas, and a sandwich at a local fast-food joint, and made a payment to your electric company. You thought you had enough money in the debit account, but you didn't, because the direct deposit from your employer was a day late. You didn't know that until you got home, however; or until you received the overdraft notice from your bank if you didn't have a computer and couldn't check your balance.

The bank would have charged you a total of $105.00 for those three purchases. In addition, every day that your account was in an overdraft state, they would charge you ANOTHER $35 fee - even if you'd made no more purchases.

Good point Naran, we are lucky enough to have at least a small cushion so that we are not broke by payday. Still I (and I know I am a penny pincher thanks to Dave Ramsey) would like to think if I got burned once I would be more aware of my financial situation. Maybe I am expecting to much, it would be interesting to see the overdraft fees and how they breakdown by age group. I do agree that you should have the option to opt out of overdraft protection if you so desire, but seems people had no problem with borrowing money at loan shark rates, even knowing the new rules were in place. Do you think the person whose direct deposit check didn't make it on time will change his/her behaviour and opt out of the overdraft protection, I would be surprised. My daughter is one of the ones who got whacked with overdraft fees and guess what she now pays attention to where her money goes, a lesson learned thanks to the banks. How do you feel about bank charges for bounced checks vs. fees for bounced debit cards?

I have no problem with fees charged for bounced checks - the register is right there in front of the person, and they should know their bank balance if checks are what they're using. They're working with paper, not electronics - unless they have direct deposit, and something screws up.

To me, that's different than the electronic debit accounts.

I totally agree that folks should take personal responsibility for their own account balances, but once in a while, mistakes are made. The usurious part of the multiple fee charging is what gets me.

Fed is cracking down on overdraft fees
Under new rules, banks will be banned from charging the fees related to ATM and debit card transactions.

By YLAN Q. MUI, The Washington Post November 13, 2009

WASHINGTON — The Federal Reserve will begin banning banks from charging many overdraft fees unless customers sign up for the service...

...snip
... overdraft charges... are a significant revenue stream for banks. Fees ... are estimated to hit $38.5 billion this year, up from $36.7 billion in 2008...
...snip

... (banks) will be hard-pressed to find replacements for that revenue. That could mean banks will begin considering charging for popular services that they had provided for free, such as checking and non-minimum accounts.

Shurrrrr - What'd They Do for Those Revenues Before They Changed the Rules?

Sounds like gubmint-speak to me. However, I think many people would rather pay $10 a month for a checking account than to pay overdraft fees.

Reader Comment from the site linked above:

ComedianTroy of All Over , ME
Nov 13, 2009 9:33 AM
.... Where it can really hurt you is if you forget one auto withdraw or a credit purchase and it puts you over. Now if you have 3 or 4 small transactions they will charge you 30-35 a piece. So now you may have only been 10-15 dollars short but you get charged 140 dollars in charges. Plus it depends on the bank but many will hit you even if the pending charges put you in the negative without giving you time to deposit that money to correct the balance.

*************

This is true, as it has happened to my son. The PENDING purchase hadn't even gone through yet, but the bank charged him an overdraft fee, regardless.

That is not right and is truly a scam. Do local stores still post bounced checks on the wall behind the cash register? Well maybe if an individual is unable to manage a debit card it should be revoked and let them go back to writing checks, overdraft problem solved, ripoff bank fees solved, sounds like a winner. lol

I agree with this:

ie; that it is not the banks fault that people overdraw their accounts...

That said, I made a one cent error on my Wachovia account. They charged me $35 for the overdraft, I realized the same day that I had made an error (used the wrong, but same colored debit card for the grocery purchase). I tried to transfer money into the account from the correct bank to prevent the charge. Wachovia refused so I had to mail a check from the other bank, wait for it to clear, and then had Wachovia double the overdraft fee to a total of $70 because it has remained on their books for more than 7 days. I called 4 times trying to cancel the account when the money was received and they refused again until the other banks check had cleared (and they could charge yet another fee)...

It took a month and a good bit of money to extract myself from that banks greed...after having banked with them for 35 years, over a one penny error.

I have no sympathy for the banks, they will figure a way to keep the money flowing.

Your story sounds familiar, Jim. I've heard the same thing from others. How many hours on hold, letters, and hassle did it take to get the situation corrected? Multiply that by the hundreds of thousands of people they similarly fleece every year.

The phrase "killing the golden goose" comes to mind. If the banks hadn't been so utterly greedy and remorseless, likely the Fed wouldn't have taken this kind of action.

Sounds like the banks abused the policy and will get what is coming to them. I have cancelled accounts at banks for the same reasons and the so it didn't happen again we changed our habits, not saying it may never happen but at least our eyes are open.

There are newsletters* that go out to banks, suggesting ways they can fleece their customers and reap more fees. Like I posted previously, a popular ploy with credit card companies was the "let's change the due date and see how many don't notice." Sure, they put a "notice" on the bill, in two-point type... and count on people not reading the fine print.

Unlike some of their customers, I DID notice, and I wrote the president a letter, and said if they ever pulled that again with me, I'd cancel my card in two nanoseconds.

* (from organizations remarkably similar to the MMA).

I never liked the CC companies, legaized loan sharking IMO. Setting up tables on college campus, saying how it helped you establish credit and those damn solicitations in the mail. Both my kids thought they knew better than their parents and got sucked in by the CC companies, fortunately they caught on quick but not before they had maxed out their small limit, the CC company couldn't wait to up the limit, instead both kids worked hard paid off the cards and cut them in half.

I am surprised at the comments posted here. Despite the prefatory lip service given to "personal responsibility", most of the posts are gleeful stick-it-to-the-man, class warfare-type tales about how they or someone they love got "ripped off" by a big corporate pig bank, when in actuality they ripped themselves off by being financially irresponsible, trying to spend money they don't have.

But what is even more discouraging to me is that this thread exemplifies the tendency for people to abandon putatively held principles when theory collides with their personal life.

Do I like bank overdraft fees? No. Do I think the solution is for the federal government to prohibit them? NO! Go to a different bank. (Notwithstanding the rhetoric, not all banks allow debit cards to overdraft the account.) Or stop using the debit card if it no longer does the thing that was the reason you got it to begin with. This new rule is the federal government forcing a private company to provide a particular product/service. Which one of the principles that this country was founded on supports this notion?
And not only is this a federal government regulation, it is coming out of the Federal Reserve. Who are this people? They are not elected officials. This is not representative government. Why are people cheering about a nation-wide federal regulation conjured up by some group of unelected unknowns that meet in secret and have no accountability to the voters, over a measly $35?

My impression is that now the consumer can choose to have overdraft protection with appropriate fees when before they could not. There is a problem with this, doesn't this count as personal responsibility?

The choice as of July 1, 2010 will be that customers will have to sign up and give permission to get overdrafts. Otherwise their debit cards will simply be declined if there's insufficient funds.

Right now, the only "choice" customers have is to not make even a one-cent error, as JimV outlined above.

I agree with Virgil.

Why should a bank be responsible for a customer's demand for funds that he doesn't have?

And by the way, since electronic banking systems can't always be online, banks have no sure way to prevent overdrafts except to stop all transactions when the system is down. Banks can - and do - stop overdrafts sometimes, but they can't always prevent overdrafts, unless by inconveniencing a far greater proportion of customers.

I should also note that most banks are willing to waive overdraft fees for long-standing reliable customers.

The new regulations are going to transfer "bad behavior" costs from careless customers to responsible ones. Phooey.

Economike, how is having a choice to have overdraft protection or not bad? And how will it affect the ones without overdraft protection? Or will the banks just make up the lost revenue somewhere else? I do disagree that the banks have no blame in this however that blame does not trump personal responsibility. I know they said how much the banks bring in with these fees but as usual they neglected to show the costs to the banks of these overdrafts.

Islander -

There's nothing wrong with choosing to purchase overdraft protection, so the new regulation isn't all bad. Problem is, for those who don't choose such protection, the system can be gamed by irresponsible customers.

Banks aren't always able to stop debit overdrafts, as I mentioned above. If banks are no longer able to charge customers for overdrafts from irresponsible card use, customers will have no incentive to avoid overdrafts. The consequence will be customers using cards at times when they know they'll overdraw because they can't be charged for the overdraft.

Michael Moebs, an economist and chief executive of Lake Bluff, Ill.-based Moebs $ervices, said the new Fed policy will cost banks on average a minimum of $5 per checking account. For the U.S. banking system, he predicts a cost of about $600 million, or 2% of the estimated $38.5 billion in consumer overdraft revenue.

"The consumer should welcome these changes," Mr. Moebs said. "However, those who keep their checking account in good order will view this as government interference."

http://online.wsj.com/article/SB1000142405274870381160457453206372090268...

This is true, as it has happened to my son. The PENDING purchase hadn't even gone through yet, but the bank charged him an overdraft fee, regardless.

Pending purchase? Was he still deciding whether to buy it? It wasn't a "pending" purchase. He had already obtained the goods from the seller by (mis)representing that he had funds in an account that would be transferred to the seller by his bank. When people do that with a check, Maine's Criminal Code calls it "negotiating a worthless instrument". I don't see how doing it with a bank card instead turns such irresponsibility into victimhood.

This is all about personal responsibility. It is telling that a site dominated by people who represent themselves as small government conservatives can't take responsibility for their finances.

This is not a problem for the federal government to solve. Solve it yourself. Learn math. Use cash.

If your kid can't do math, take the card and cancel the account. Please don't ask the rest of us to deal with an ever expanding federal government to compensate for your poor math skills.

The $35 fee (x5) from BoA taught one of my girls more about personal financial responsibility than I ever could.