Bank of America, JP Morgan Chase and other banks have announced plans to rein in the outrageous overdraft fees they’ve been charging debit card customers.
They’re not doing this out the goodness of their hearts. They’re trying to stop Congress from cracking down on their abusive practices.
But lawmakers shouldn’t be fooled by the modest voluntarily changes the banks are proposing.
New rules are needed to stop the banks from covering the losses on their reckless lending by collecting $39 billion a year in overdraft fees from surprised and unsuspecting checking account customers.
When debit cards were first introduced, banks wouldn’t let customers spend more than they had in their checking accounts.
While having a debit card declined might be a little embarrassing, it didn’t cause any financial harm (and probably got customers to look at their account balances, pronto).
Then banks realized they could make serious bucks by enrolling everyone in “overdraft protection” plans and allowing those transactions to go through — for a price.
The average overdraft fee is now $26, with many banks charging as much as $39.
Customers are never warned that their account is overdrawn and the fee is imposed on every transaction that can’t be covered.
It doesn’t matter whether they’re buying a mink coat or a $4 latte at Starbucks. And to help them charge as many overdraft fees as possible, the banks deduct the largest purchases on any given day first to drain accounts as quickly as possible.
No wonder the same lawmakers who pushed the Credit Card Accountability, Responsibility and Disclosure Act through Washington earlier this year want to do something about overdraft fees.
When those discussions heated up this fall, Bank of America, JP Morgan, BB&T and Wells Fargo suddenly decided customers would be allowed to opt out of overdraft protection and have their card declined.
JP Morgan Chase said it would start posting purchases in chronological order.
Bank of America said it wouldn’t impose fees on accounts that are overdrawn by less than $10; J.P. Morgan Chase, BB&T and Wells Fargo will do the same if the amount is less than $5.
They’ll still impose multiple charges, but Bank of America, BB&T and Wells Fargo will limit themselves to four a day and Chase only three a day.
Gee, thanks guys.
We saved your ass with a $700 billion bailout and you returned that favor by whacking us every chance you got — raising the interest rates on credit cards, slashing credit limits on home equity loans, dragging your feet on mortgage refinancings and modifications.
Fees like this now account for 25% of big bank revenue, according to the FDIC.
Why should we trust you to do the right thing?
Congress should enact sensible rules that require customers to opt in (not allow them to opt out) for overdraft protection, force banks to post charges in chronological order, and limit the number of overdraft fees they can charge.
If we’ve learned one thing from the financial crisis it’s not to count on big banks to show good judgment.