Overdraft Deception

A recent survey of over 400 banks in the U.S. by the FDIC reveals that three-fourths of them automatically enrolled account holders in expensive overdraft protection programs.  Commonly known as "courtesy overdraft protection", banks claim to provide you a service by paying on your behalf for items you purchase that cause an overdraft or while overdrawn. Sounds like a good deal but the fees can be horrendous.

 

Banks will charge you anywhere between $10 to $38 for each overdrawn purchase. Meaning a $1 hamburger from the dollar menu can end up costing you nearly $40! To make matters worse, some banks even charge interest on your resulting negative balance.

 

It doesn't stop there. Some banks employ another tactic to maximize their profits. They'll process your overdrawn transactions from largest to smallest. This means, if you buy that burger with $10 in your account and then purchase a $100 textbook, the textbook will be charged first resulting in two overdraft fees (one for each purchase) rather than one fee for the book alone.

 

According to the FDIC, 18 - 25 year olds as well as customers living in low income neighborhoods are more likely to incur overdraft fees and are impacted by these practices the most. Banks are preying on the very people who are struggling the most.  When it's all added up, overdraft fees bring in billions of dollars every year for these banks.

 

Congress and the Federal Reserve are considering taking measures that would require banks to provide customers with more information about overdraft fees and require them to have your consent before adding those "services" to your account. (H.R. 946 at WashingtonWatch.com)

 

• Call your bank and ask them to remove "overdraft protection" - When you do this your account will work the way it should. If you don't have enough money to pay for it, your card gets declined. Plain and simple. 
  
• Keep a cushion - Maintain a decent cushion of cash in your account to completely avoid this problem. (Easier said then done, I know.)
  
• Create a linked account - Most banks will allow you to create a free savings account that you can link to your checking. Any amounts overdrawn from your checking will be taken out of that instead of incurring overdraft fees.
  
• Use online banking and check your account frequently - You never know when an overdraft can occur from identity theft, merchant error, or bank error. Keep tabs on it so you can report things that don't look quite right.