Overdrafts, high bank fees have consumers cry 'foul'
Nisa Islam Muhammad/Special to the NNPA from the Final Call
Issue date: 4/19/09 Section: Business
WASHINGTON (NNPA) - Carolyn Williams was unsure about the exact amount in her bank account when she went shopping. She wasn't really worried because she knew her debit card would only cover costs for the amount of money she had in the bank.
Williams learned an expensive lesson when she checked her account and discovered that not only was she charged for more than she had but each purchase over the amount of money she had also cost her $35 in bank fees.
"I spent $50 more than I had in my account on three purchases and I was charged $35 each time. So a $50 overdraft cost me $105 I couldn't believe it. Why didn't they just decline the charge?" she asked The Final Call.
"This is a problem. I didn't ask them to advance me the $50 but they did and it cost me a whopping $105. I didn't have the $50 now I'm overdrawn $165."
This practice of advancing loans to bank customers is under review by the Federal Reserve Board. It is considering implementing a new rule that would require financial institutions to get explicit permission before enrolling their account holders in an overdraft system that automatically approves debit card and ATM transactions, and assesses an average $34 fee if there is a negative balance in the account.
In a recent study by the Center for Responsible Lending, U.S. consumers overwhelmingly said they want to be asked their preference before a bank or credit union enrolls them in a program to cover debit card purchases when they do not have the funds.
Financial institutions typically enroll their customers in a system that covers debit card overdrafts and then assesses them an average $34 fee for each transaction, often on the purchase of an item that costs less than the fee itself.
The vast majority, 83 percent of these consumers also wanted their bank to ask permission before enrolling them in such an overdraft program, rather than just doing so automatically.
Almost half of all overdrafts-46 percent-are triggered by debit cards at the ATM or the point of sale. These overdrafts could be easily prevented with a warning or denial. Most debit point-of-sale overdrafts are small, averaging less than half this $34 fee, meaning that these overdraft loans cost nearly $2 for every dollar advanced to cover the shortfall.
Williams learned an expensive lesson when she checked her account and discovered that not only was she charged for more than she had but each purchase over the amount of money she had also cost her $35 in bank fees.
"I spent $50 more than I had in my account on three purchases and I was charged $35 each time. So a $50 overdraft cost me $105 I couldn't believe it. Why didn't they just decline the charge?" she asked The Final Call.
"This is a problem. I didn't ask them to advance me the $50 but they did and it cost me a whopping $105. I didn't have the $50 now I'm overdrawn $165."
This practice of advancing loans to bank customers is under review by the Federal Reserve Board. It is considering implementing a new rule that would require financial institutions to get explicit permission before enrolling their account holders in an overdraft system that automatically approves debit card and ATM transactions, and assesses an average $34 fee if there is a negative balance in the account.
In a recent study by the Center for Responsible Lending, U.S. consumers overwhelmingly said they want to be asked their preference before a bank or credit union enrolls them in a program to cover debit card purchases when they do not have the funds.
Financial institutions typically enroll their customers in a system that covers debit card overdrafts and then assesses them an average $34 fee for each transaction, often on the purchase of an item that costs less than the fee itself.
The vast majority, 83 percent of these consumers also wanted their bank to ask permission before enrolling them in such an overdraft program, rather than just doing so automatically.
Almost half of all overdrafts-46 percent-are triggered by debit cards at the ATM or the point of sale. These overdrafts could be easily prevented with a warning or denial. Most debit point-of-sale overdrafts are small, averaging less than half this $34 fee, meaning that these overdraft loans cost nearly $2 for every dollar advanced to cover the shortfall.
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