Banks under fire for ‘criminal’ overdraft fees: MSNBC.com Article

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http://www.msnbc.msn.com/id/32948183...shington_post/

Banks under fire for ‘criminal’ overdraft fees Backlash brews as Dems target bailed-out firms that rely on hidden charges Alex Wong / Getty Images Senator Christopher Dodd speaks to the media on Capitol Hill on Thursday. Dodd plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. updated 4:20 a.m. CT, Mon., Sept . 21, 2009 A backlash is brewing on Capitol Hill against banks that charge large fees for overdrafts without asking or telling customers, the latest sign that the financial crisis is shifting the balance of power from banks toward borrowers. Banks struggling to survive have become increasingly reliant on the fees, which could total $38.5 billion this year. But congressional Democrats, who pushed through new restrictions on credit cards this spring, now are promising a crackdown on overdraft fees, using words like "criminal" and "rip-off" to describe the practice of letting people overspend and then charging them fees without warning. Most overdrafts are now incurred on debit card transactions. Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. If customers decline and then try to overspend, the transaction would be rejected. A similar bill is pending in the House. Dodd dismissed concerns about the impact on ailing banks. "People out there are getting whacked," he said. "They should have the right to say, 'Deny me the transaction.' " Regulation overhaul The attack on overdraft fees comes as Congress is considering a fundamental overhaul of financial regulation. The Obama administration has proposed the creation of a new agency empowered to write and enforce rules protecting consumers in financial transactions, removing that power from banking regulators. Dodd also favors the creation of a single agency to oversee the health of banks, consolidating a responsibility held by four agencies. Even as that debate unfolds, however, some members of Congress see a need for more immediate action in specific areas, such as credit cards and overdraft fees. There is outrage that some banks have raised fees, squeezing consumers even as the government is investing vast sums to rescue the industry. Average overdraft fees at large banks have increased 4 percent this year, according to Moebs Services, a financial research firm. Industry groups argue that customers are responsible for monitoring their account balances, that overdrafts should not happen unintentionally and that overdraft loans -- the money advanced automatically to cover the overdraft -- are a service that banks offer. The issue has been simmering for years. In the age of handwritten checks, banks rarely made overdraft loans, but as the rise of debit cards vastly increased the volume of transactions, the industry gradually perfected a new strategy. Banks began to honor transactions, up to a preset limit, and then charge a fixed fee on top of the amount of the loan. Most banks automatically offer the loans to all account holders, according to a study by the Federal Deposit Insurance Corp. released last year. They also do not notify customers when an overdraft is about to occur, nor do they offer them a chance to cancel the transaction. Furthermore, many banks process transactions in ways that increase the number of overdraft charges, for example by debiting large transactions before small ones, exhausting available funds more quickly. Unregulated credit card? Moebs Services projects that the industry will make $38.5 billion off the fees this year, up from $18 billion in 1999, in part because the average fee large banks charge for each overdraft has climbed by $10, to $35. Because most overdrafts are now prompted by debit card transactions, consumer advocates argue that the industry in effect has created a new kind of unregulated credit card. But the Federal Reserve ruled in 2004 that banks were providing a service rather than a loan, and therefore the customer's decision to spend the money was sufficient to indicate approval. The Fed did require banks to detail the fees on the customer's next statement. When Amanda Miller Littlejohn went to her bank to deposit money after returning from a Labor Day weekend trip to Nashville, she was surprised at how low her balance was. Too embarrassed to cause a ruckus at the counter, she went home and checked her account summary online. She discovered that she had been charged five separate $36 fees for spending more than she had in her checking account. "I had used the check card a couple of times, and they took it and no one said anything," said Littlejohn, a 28-year-old Northwest Washington resident and owner of a public relations company. When she called SunTrust to ask why money could not be pulled from her savings account, where she had thousands of dollars, the customer service representative said that she had never asked to link her accounts. When she asked why the bank had lent her money if she had never asked for overdraft protection either, she said, she was told that the bank was protecting her. Barry Koling, a spokesman for SunTrust, said that he could not comment on Littlejohn's situation but that "we do offer a variety of products by which clients can avoid overdraft fees." A welcomed service? A survey released by the American Bankers Association last month showed that 82 percent of 1,000 customers did not pay an overdraft fee in the previous 12 months. Of those who paid the overdraft fee, 96 percent said they were glad the payment was covered. "Clearly, consumers who pay overdraft fees are the minority, and that number is shrinking," Nessa Feddis, ABA senior federal counsel, said in a release for that study. "More importantly, most consumers want banks to pay their overdrafts so they can avoid the inconvenience, embarrassment and potential costs of having a payment or transaction rejected." An ABA spokesman declined on Friday to comment on Dodd's upcoming bill because the details were not yet available. The contours of the legislation remain undefined. The Federal Reserve has now proposed a new requirement that banks must sign up customers for overdraft programs. That is the minimum standard under consideration by Dodd's staff. The House bill, authored by Carolyn Maloney (D-N.Y.), would require banks to obtain permission from customers before each overdraft loan, but Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said he considered that idea unwieldy. Sen. Charles E. Schumer (D-N.Y.) also favors a requirement making the fee proportional to the amount of the loan. The fate of the bill is intertwined with the broader debate over financial reform. Frank said new rules clearly were necessary, but if Congress voted to create a new consumer protection agency, it could write the rules. If the banking industry succeeds in its opposition to the new agency, he said, he would favor a strong overdraft bill. "Banks should understand that they can't have it both ways," Frank said. "If that should falter, then we will pass a tough overdraft bill."

After reading this, I personally like this idea. Wachovia has been my bank for the longest time and before I had an Iphone, I could never check my balance online because it took to long to load the page and blah blah blah. I had to be at my computer to check my balance which when you're out, you're obviously not there. After getting $35 NSF charges upon the $35 NSF, I decided to open a USAA account because they DO alert you once you are about to hit a $0 balance. I like having that luxary of knowing..."um crap, I have no money to spend...can't do anything".

I do check my accounts daily and I still have my account with Wachovia but it's no longer my main account due to the NSF amounts they charge.

I personally like this idea.

What is your opinion?

[Aunt Sponge]

It's a two-way street.

People should be staying on top of their income and bank-balance and careful not to overspend - and avoid going into the red.
Any mistake that's made (it happens often) should be corrected promptly - and people should maintain good records.

This is just financial common sense and what everyone should do.

However, if a bank gets to a point where they truely depend solely on the net profit from people's mistakes - then they're at fault for not maintaining their own books properly and by not conducting business wisely.


there should be no bailout - no help for people who default either intentionally or by mistake.
No bailout for banks who have come to solely rely on everyone's mistakes and problems.

[IslandSweetie]

Originally Posted by Aunt Sponge It's a two-way street. People should be staying on top of their income and bank-balance and careful not to overspend - and avoid going into the red. Any mistake that's made (it happens often) should be corrected promptly - and people should maintain good records. This is just financial common sense and what everyone should do. However, if a bank gets to a point where they truely depend solely on the net profit from people's mistakes - then they're at fault for not maintaining their own books properly and by not conducting business wisely. there should be no bailout - no help for people who default either intentionally or by mistake. No bailout for banks who have come to solely rely on everyone's mistakes and problems.

ITA! When I've overdrafted on my account I've NEVER thought about blaming the bank.... poor planning on my part does not constitute a liability on the banks part.

That said, I think they should invest more in financial education so people KNOW how to balance a checkbook

I've started working with this for my 7 & 9 y/o.. I give the $20/mo for school lunch... lunch is $2. So they have learned they have had to budget. The lunch is charged against their "account" so technically if they aren't paying attention they can go over. I'm proud of how they are handling it so far as I overhear conversations of "I need to make lunch Friday because I need to buy lunch on Monday & if I don't I'll run out of money!"

If 7 & 9 y/o's get the concept, I wonder why grown adults can't.

[cee_cee88]

I do agree with this. BoA has made SOOOO many mistakes on my account and tried to charge me because of their own mistakes. If I was given the option where overdraft wasn't an option, it would have fixed quite a few of these issues. They like to charge me twice for things, and when my account is low, it really messes with my tally I have going.

[rosebud*]

I think that the high cost of overdraft fees is ridiculous. I'm with Aunt Sponge it is the consumers responsibility to keep track of their finances. What I hate is when banks and cu's lie about how there is no system that can do what USAA does ( obviously if USAA can do it duuuuh lol) I think that with our new mobile world banks also need to become more savvy to that. One think I like about USAA is i can text for my bank balance at any time. I don't have to have internet on my phone I can simply send a text and get my balances. I think all banks need to jump on that wagon.

[MandaJ]

It is the consumers job to make sure that you have the funds in the bank, I agree there.

But what I think is ridiculous is that MY bank, charges a 37.50 overdraft fee, then after 3 days of not taking care of it (putting all of the missed funds in there) they charge you 8 dollars a day, 24 more dollars every 5 days.....

we over drafted like 30 dollars like 4 days after payday........ ended up having to pay 480 in fees and ****. That put us into a financial crisis. It was terrible

[Aunt Sponge]

Originally Posted by MandaJ It is the consumers job to make sure that you have the funds in the bank, I agree there. But what I think is ridiculous is that MY bank, charges a 37.50 overdraft fee, then after 3 days of not taking care of it (putting all of the missed funds in there) they charge you 8 dollars a day, 24 more dollars every 5 days..... we over drafted like 30 dollars like 4 days after payday........ ended up having to pay 480 in fees and ****. That put us into a financial crisis. It was terrible

yeah, that's extreme --- I agree, the charges ARE high and are just climbing higher. "hourly rates that will always increase" is BS considering that my bank doesn't get a prompt notice out to you - I don't get an official notice from the bank about the overdraft until after I've already discovered it on my own and drifted in money from my savings. We live with a staunch budget and I'd rather cover it before the paycheck hits - if I'm in that type of situation which doesn't happen often because of my budget that i stick to.

IMHO - the charges shouldn't exceed the overall dip into the red and should be capped at $15.00.
In part because $15.00 is more than the average person's hourly pay and is a bit of a hit but not to the point where it'll cripple them financially.

[sapphiremommy]

Originally Posted by MandaJ It is the consumers job to make sure that you have the funds in the bank, I agree there. But what I think is ridiculous is that MY bank, charges a 37.50 overdraft fee, then after 3 days of not taking care of it (putting all of the missed funds in there) they charge you 8 dollars a day, 24 more dollars every 5 days..... we over drafted like 30 dollars like 4 days after payday........ ended up having to pay 480 in fees and ****. That put us into a financial crisis. It was terrible

that to me is ridiculous!!

and honestly...people make mistakes. but the way banks process fees is crazy to me as well.

just to give an example last christmas I made a mistake and wrote a check from the wrong account. I check my balance daily so when I saw the check hit the wrong account I went and transfered money to cover the check, the fee, and everything else that was still pending for that account. 2 days later I got hit with 5 over draft fees and was in the negative again because the bank processed the pending transactions and then the deposit. thats baloney to me cause it was a cash deposit. it should have been available the same day. instead they took advantage and basically said, if you screw up, there is no way to fix it to avoid any more fees. you gotta pay them on everything pending still. screw that, i switched to another bank that processes deposits before debits.

I don't float checks, I religiously check my accounts and balance my checkbook, I track every debit card transaction. but when someone does make a mistake I don't think the bank should rape you over it.

[IslandSweetie]

Originally Posted by MandaJ It is the consumers job to make sure that you have the funds in the bank, I agree there. But what I think is ridiculous is that MY bank, charges a 37.50 overdraft fee, then after 3 days of not taking care of it (putting all of the missed funds in there) they charge you 8 dollars a day, 24 more dollars every 5 days..... we over drafted like 30 dollars like 4 days after payday........ ended up having to pay 480 in fees and ****. That put us into a financial crisis. It was terrible

Yeah that is high. I think if they are going to charge a "penalty" it should be something more reasonable (i.e., X% of the amount overcharged). It makes no sense to pay $480 for $30. They are a bank, they loan higher amounts of money out for less than that.

Your story makes payday lending look more attractive than overdrafting

[sapphiremommy]

Originally Posted by IslandSweetie Yeah that is high. I think if they are going to charge a "penalty" it should be something more reasonable (i.e., X% of the amount overcharged). It makes no sense to pay $480 for $30. They are a bank, they loan higher amounts of money out for less than that. Your story makes payday lending look more attractive than overdrafting

and yet those are a vicious cycle that people get sucked into. they borrow more than they can afford to adn then are expected to pay it all back plus the fee at their next payday. but wait! if you can't pay it we'll extend you, you just gotta pay the fee and agree to pay another one at the next payday. i've seen to many people get into much harder situations with those things. if you don't have the money now...what makes you think you'll have it in a week from now? your other bills aren't going away.