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Let’s opt out of “overdraft protection”

Posted in Economy by CrankySaver
April 6, 2009 09:46 AM - 5 Comments

Let’s opt out of “overdraft protection”

Congress and the Federal Reserve are considering new rules or laws that would stop banks from signing checking account customers up for costly and unnecessary overdraft protection without their permission.

It’s about time.

When debit cards were new, customers weren’t allowed to overdraw their accounts.

If you went to a store or ATM, and tried to spend or withdraw more money than you had in your account, the transaction was denied.

But that didn’t generate any money for fee happy big banks, so they began enrolling customers in “overdraft protection programs” to save them from potential embarrassment and inconvenience.

According to the FDIC, 86% of banks have overdraft programs and about 75% of those enrolled customers without asking them.

Instead of declining a purchase or ATM withdrawal for insufficient funds, banks allowed those transactions to go through, imposing an average fee overdraft fee of $34 on each and every time.

Most customers aren’t even aware that they have overdraft protection until they drain their checking account for the first time and get hit with a string of fees. They’re shocked to find that they’ve racked up hundreds of dollars in penalties buying $4 lattes and $3 Big Macs at Starbucks and McDonalds.

No matter what spin the banks put on it, overdraft protection wasn’t created to help consumers. They were setting a trap to boost their revenue.

Young and low-income customers, those most likely to be living paycheck-to-paycheck, are also the most likely to pay overdraft fees, according to the FDIC survey.

Of course customers can always call their bank and “opt out” of overdraft protection.

But the new government rules would require customers’ approval before they’re enrolled.

The banks don’t like that because they’re afraid lots of customers will say “no,” and they’ll lose billions of dollars in fees.

But it’s the right thing to do.

Comments (5)
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  1. Sam B said:
    on April 6th at 10:11 pm

    I have Bank of America and they used to charge $25 for overdraft. Then you could call customer service and link your checking to your savings and reduce the overdraft fee to $10. Now they’re involved in a lawsuit because they somehow were “encouraging” people to overdraft more frequently. I’d rather just have my card denied.

  2. Randall G said:
    on October 21st at 10:45 am

    Cry me a friggin’ river. People need to be responsible and know what they have or don’t have in their accounts. In addition, what in the heck is the difference between an overdraft fee and an NSF fee? They’re about the same from my experience. Would you rather go through the inconvenience of correcting your NSFs all over town or pay the same fee (or less) as the NSF fee and avoid the inconvenience? Take some dang responsibility and don’t write checks if you don’t have enough money in your account!

  3. dan said:
    on October 30th at 10:22 am

    NSF fees only apply to bounced checks and similar. Going into a store and having your card denied does not generate an NSF. Having the transaction go through (if there was NSF) would generate a fee.

    Consider the following (real) case:

    There is 100$ in the account. 5 transactions go into “pending” state. 4 of these transaction are less than 10$. 1 is a 200$ check that was cashed early. Because they all occurred on the same day the bank is free to order them in any fashion that they like. They have the 200$ check go through first and then hit you with 5 overlimit fees (35$*5=175$). If they had denied the check you would have gotten one NSF fee. If they had posted the transactions in the order they occurred you also would have gotten one fee. As it is they hit you with 5 times that.

    The banks claim that it costs them money to cover overdrafts. This is certainly true, however, I was watching cspan this morning and a banking representative attempted to state that the cost to banks is in excess of 10$ for each overdraft. I find it difficult to believe that it costs the bank more than 10$ fund my $2.50 overdraft. Putting that aside it still doesn’t add up to 35$!

  4. Dan G. said:
    on February 10th at 02:04 pm

    I am sorry to those of you who seem to be taking up for the banks on this issue, but I know first hand how much of a problem this is for so many people. It is not always as simple as “keeping up with your spending” as banks design their automated systems to promote the occurrence of overdrafts. I called BoA over a year ago to opt out of my Overdraft Protection (at the time I was unaware that it would deny overdrawn purchases at Point-of-Sale, which would have been fantastic) and they said they would cancel it. Now I find out that it was never canceled, if so I would have been declined at POS and not allowed to overdraw. Also, I called them twice about their policy of re-ordering transactions from highest-to-lowest. The first time I called I was told that it was the result of “a customer survey” showing that customers preferred this method. The second time I called I told them that I would be changing banks because of this policy, and I was told that changing banks would not help because high-to-low re-ordering was federally mandated banking regulation and they were required to do it that way (which was simply a lie to keep me with their bank). Now, very recently, they converted my savings account (which is also attached to my Debit Card) into a checking account so when I go to the ATM to deposit cash/checks I can’t tell which account I’m depositing into making it difficult to bring a negative account into the positive. The list goes on and on of situations where BoA has manipulated accounts to make them confusing and hard to manage. I know they are just like any other business with the goal to make money, but when you can’t trust your bank to handle your money, who CAN you trust?

  5. Bank Safe said:
    on March 1st at 11:24 am

    I called BofA prior to 2/22 and asked to stop overdraft protection. They said fine, but would still charge $35 for a declined POS as well as not letting the charge go through. What good is that?

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