| If you are like me, you have a bunch of different bills to pay and, upon occasion, have a checking account error that leads to an overdraft charge. If you are a customer at my bank, you pay $35 for each charge that puts your account into the negatives. Also, if you are a customer at my bank and your account remains overdrawn for more than five days, they charge you an additional $35.
Overdraft charges aren't anything new, but they have been a great way for banks to make money.
Last year, banks in the United States received $38.5 billion in overdraft fees from customers that ran into trouble with their checking accounts, profiting off customers during the worst economic crisis since the Great Depression.
The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.
"Banks are returning to a fee-driven model and overdraft fees are the mother lode," said Mike Moebs, the company's founder.
Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits, he said.
The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.
Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. "Overdraft fees are there for a reason, we take on a lot of risk," a senior banker said. "It's a service to our customers, they want us to pay their overdrafts."
The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn - a group including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo - the median overdraft fee is set at $33.
At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty.
BofA said that the bank was "committed to ensuring that our fees are transparent and predictable. We have a range of tools and services to give customers more control over their accounts and to prevent these fees".
I will give you an example of something that recently happened to me. Because of a small fee that I was charged unrelated to my checking account, I did not have enough to pay my monthly $50.38 to Sallie Mae for a loan. Sallie Mae tried to put through the payment multiple times. Each time, it failed. I didn't realize this until it was too late. By the time I had, I had incurred three $35 charges because each time Sallie Mae tried to process the payment, it failed.
While I acknowledge that it was my error, charging me three overdraft charges for what amounts to one payment is excessive. In addition, charging me an extra $35 if it stays that way for five business days is just as excessive.
People need to realize that banks, like any business, require profits. There seems to be this silly idea that banks are just a place where we, as consumers, place our money for safe keeping. Maybe that's how it worked in the past, but that's not how it works now.
Banks need to make money and clearly, they have benefited from charging overdraft fees on consumers who overdraw on their accounts. My belief has always been that if the person didn't have the money to cover the overage, whether it's a small charge or even a larger one, what makes you think they will be able to pay the extra $35 per overage?
My bank is Bank of America. When I have gone up to the window and they realize I have overdrawn my account (the reason I am at the bank is to deposit money to cover the overage), they ask if I have applied for their overdraft protection. They can tout this as one the "range of tools and services to give customers more control over their accounts and to prevent these fees" but it's nothing more than a credit card to protect your account. If you're like me and you have student loans in your name and can't get a credit card, chances are you aren't going to be able to get approved for overdraft protection.
Overdrafts are nothing more than a moneymaker for banks. They don't deter people from overdrawing on their account. Accidents happen and when they do, a $35 fee is a steep price to pay for something that might be an innocent, inexpensive charge or for something that is even more than the fee itself.
Overdraft fees, if they should exist, must be something that is affordable for consumers. If someone overdraws their account by $10, why should they be forced to pay that $10 to cover the balance PLUS an additional $35 fee to the bank? It's not very customer-friendly, especially in these tough times.
That's why banks should look at ways of staggering fees and eliminating fees altogether for low overages. Mistakes happen and we should not allow banks to continue to profit off minor errors. |
