Overdraft fees are truly small, high-cost loans made by banks or credit unions to an account holder who is "in the red," often without the account holder's consent. The bank recoups the loan amount, plus a fee averaging $34 from the account holder's next deposit.
Often marketed inappropriately as "bounce protection," the abusive fee-based overdraft loan should not be confused with cheaper sources of back-up funds for checking accounts. These loans can make a small purchase, even a sandwich or doughnut, cost the unsuspecting bank customer over $30, and they can trigger a domino effect of debits that leaves the customer struggling to climb out of a negative balance.
What are overdraft fees abusive?
Banks can often increase the number of overdrafts, through practices like clearing high-dollar debits before subtracting smaller debit amounts, holding deposits longer than necessary, and failing to decline overdrafts or warn customers at the checkout or ATM if they have insufficient funds.
How does this impact you?
Almost half of all overdrafts (46%) are triggered by debit cards at the ATM or the point of sale. Most of these debit point-of-sale overdrafts are small, averaging less than half of the $34 fee, meaning that the overdraft loans can cost nearly $2 for every dollar advanced to cover the shortfall.
What can you do to avoid overdraft fees today?
•Switch: If your bank or credit union will not let you opt out of a system that automatically approves your overdrafts without warning, for an average $34 fee per incident, switch to another bank or credit union.
•Link: If you can, link your checking account to a savings account or line of credit, which can be available at annual interest rates as low as 18 percent.
What else can you do?
Share your story with the Federal Reserve. Right now, bank regulators and Congress would like to hear from hard-working Americans affected by unauthorized overdraft fees. Specifically, they would like to know if the clear option to Opt-In to overdraft protection programs would be helpful to consumers.
Share your story today and end the attack of the overdraft fees.
<< Back to article
