How “overdraft” becomes “way the heck over” draft
I'll take full responsibility for one overdraft back in the spring in a rush to get out of town. I did the crime, I should do the time. Go ahead, ding me for $35.
It was really cute, though, the way my bank subtracted the biggest purchase of the day first - it wasn't the earliest chronologically - to maximize the number of overdraft fees it could charge. What really left me in awe, though, was the way account fees were tacked on a few hours early so the bank could rack up yet another overdraft fee.
Overdraft fees are big business for banks these days - an estimated $38.5 billion this year, more than double the total of 10 years ago, according to today's Washington Post. Individual fees also have increased 4 percent over last year, to an average of $35 per bounce.
Not that that one wasn't easy to see coming the second banks started struggling under the weight of subprime loans they'd so giddily approved for years. Someone had to pay for that mess, and the average account holder was going to have to ante up even if they'd conscientiously avoided the stupid loans.
The bank, of course, considers it a "service." I have another name for charging a $35 fee on a $6.95 transaction.
And so does Sen. Christopher Dodd, who, on the heels of his success earlier this spring in reigning in gouges on credit-card holders, is ready to tackle overdraft fees.
"People out there are getting whacked," he told The Post. "They should have the right to say, 'Deny me the transaction.' "
According to a news release on Dodd's Web site, his bill would ban banks from enrolling customers in overdraft protection programs without their consent. If they're not enrolled, the transaction would be rejected at the store or ATM.
Almost half the overdraft fees banks charge originate from debit cards or ATMSs, according to the Center for Responsible Lending. The overwhelming majority of consumers - 80 percent - would be just thrilled if banks simply rejected the transaction instead of generously giving them the loan and later charged a fee that usually costs more than the purchase, the center also says.
In fact, that's the way it was until about five years ago, when banks figured out they could make more money if they "protected" the customer by covering the overdraft. Today, 81 percent of banks allow debit-card overdrafts and only 11 percent offer warnings first, the center says.
I eagerly await the banking industry's spin on this one. Clearly, most of us aren't buying the notion that it's an added service.
Copyright 2009 Debra Legg. All rights reserved.