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Overdraft or embarrassment?

Posted on July 12th, 2007 – 10:03 AM
By Kara McGuire

My colleague Jackie Crosby wrote a story about a new report on overdraft fees . The report, released by the Center for Responsible Lending this week, found that banks and credit unions generate $17.5 billion in fees each year from charging consumers $35 bucks for buying a latte when over the limit.

The authors recommend that banks be required to warn customers when an ATM withdrawal or debit card transaction will put them in the red.

Banks argue that that would be an inconvenience and an embarrassment to consumers.

I don’t know about you, but I’d rather be $34 richer and have a sales clerk know I’m skating close to zero in my bank account than in negative territory with a burger in hand (My few overdrafts have resulted from some ridiculously small purchase that I made just hours before a deposited check cleared).

This entry was posted on Thursday, July 12th, 2007 at 10:03 am and is filed under fees, research. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

51 Responses to "Overdraft or embarrassment?"

mapgirl says:

July 12th, 2007 at 10:34 am

Hm. I bet people would flock to a bank that said they charge only $10 for overdraft fees.

Perhaps being declined a few times would teach them a lesson about paying attention to their finances?

jenny says:

July 12th, 2007 at 10:48 am

I would at least like to see ATMs inform you that you are overdrawn.

I recently had an automatic payment debited twice without my knowledge and getting cash before it was taken care of cost me an extra $33.

nicole joy says:

July 12th, 2007 at 11:05 am

I’m with you. If there is nothing in my account - don’t give the cc machine an approved. It would be annoying and embarrassing, but I’d rather suffer a discomfort than a financial hit. Or at least allow consumers to choose how it should be handled!

SM says:

July 12th, 2007 at 11:36 am

A lot of this problem would be alleviated if banks would change how they record withdrawals and deposits. I’m sorry, the reasons in the article the banks gave to defend their practices requires a shovel and clothespin (for the nose) to process.

SC says:

July 12th, 2007 at 12:16 pm

I have overdrafted a few times in one day when a bank I used to have (obviously not anymore!) made it a practice to credit withdrawals before deposits… and then to do large withdrawals before smaller resulting in 3 in a day for a coffe or milk or something for no good reason. I have always said that I wold have loved to be turned down instead of paying those fees! But the bank I have now credits deposits first and I also have overdraft protection linked to a credit card (which coincidentally I have never had to use.) There really should be a standard practice of how deposits and withdrawals are credited to accounts.

Mike says:

July 12th, 2007 at 12:31 pm

As a bank employee, I have to chuckle/scream everytime I read a story like this one (and that is QUITE often). It seems the media loves stories like this because it riles people up. Nobody likes to lose money… not even banks. Surprised?
A bank is a business, not a charity. It is not their responsibility to provide customers with “short-term loans” or other such services. If I may comment on the idea, people saying the overdraft fee as a “courtesy loan” is predatory is ridiculous. The bank is not MAKING you overdraw your account.
My bank provides customers access to account information on-line, on a free automated phone system and a free customer service line that is open 16 hours a day. There is no excuse for someone to be overdrawn in their account. If it’s an unauthorized transaction, the bank will investigate and correct it and any associated fees will be reversed.
This mentality is merely a continuation of our society’s favorite pastime, blame-ducking. Blaming the bank for charging you overdraft fees is like blaming the police for arresting you after committing a crime. The police did not force you to commit the crime. I can also tell you, in regards to cards accepting charges without the funds in the account, many institutions provide the option to NOT take part. Simply ask them as they’re not going to ADVERTISE it.
By the way, we get nearly as many calls about cards being denied as we do fees being charged. So while some people would be okay with it if it meant not being charges, many more would not.
And yes, I sometimes incur fees as well and no, I don’t get them reversed. I pay them like everyone else. So this is my opinion as one who sees both sides of the story.

CSE says:

July 12th, 2007 at 12:53 pm

I’ve built in a buffer in my checking account to avoid overdrafts. I started it with $50 and rounding all of my transactions to the nearest .50 … For example, a $100.17 deposit is tracked in my log book as plus $100. A checkcard payment for the same amount would be logged as a subtraction of $100.50.

Not knowing exactly how much is there keeps me from writing too far into the red.

Also, it amazes me that more people don’t contest the overdraft fees, especially if it’s their first one or the first in a long time. A simple phone call to a personal banker and a friendly tone of voice goes a long way.

Kara says:

July 12th, 2007 at 1:13 pm

CSE makes two great points.

I’ve contested overdrafts twice with success. It’s well worth 15 minutes of your time.
An account buffer is a good idea too, but not necessarily possible for many living paycheck-to-paycheck.

As for Mike’s point about personal responsibility, yes, that is always a piece of money management. But isn’t the bank partially at fault if it offers a way to opt out of transactions when an account is empty but chooses not to inform the consumer of the service? Clearly, not advertising creates the perception of profits over people.

Ally says:

July 12th, 2007 at 1:26 pm

The simple fact is, if you are getting a lot of overdrafts, 99% of the time, it is not an error, you are just spending more money than you have. I agree with the banks, learn how to manage your finances.

Paul says:

July 12th, 2007 at 2:37 pm

I agree with Mike, it’s not the bank’s fault when you try to take more money out than what you have. Put more money in your account so you have more of a cushion to protect against this.

mediamom says:

July 12th, 2007 at 3:24 pm

I think that overdraft fees are obnoxiously high and this is why I am very careful not to draw more money than is on my account. If I really must have that coffee, shouldn’t I be checking to see that I have enough in the bank to cover it if I am choosing not to use loose change? And if I’m not sure, perhaps I should deny myself the little temptation until I am sure the funds are there. I have read Credit Card Nation and The Two Income Trap: Why Middle Class Families are Going Broke. I understand that banks are more predatory now since the government has decided not to protect us as much as it used to. Many laws have changed that aide banks in getting even more money from folks for certain reasons and situations, but this one is a no-brainer… if I can’t afford the (whatever) I don’t buy it. I had an overdraft about 15 years ago because I didn’t understand how the bank paid on my account (big transactions first, then little ones). You read the fine print or learn as you go.

I think if you chose the overdraft rather than the embarrassment of being told you have no money in an account to cover a purchase, you are in a sad situation in two ways: 1- you are having a hard time managing your money and 2- you are in denial of it.

Mike says:

July 12th, 2007 at 4:07 pm

One could make the argument that not advertising the feature is “under-handed”. But keep in mind that your cell phone company, your phone company, your electric company, your cable company, your insurance company, Best Buy and any other tech companies, etc. are also not telling you about your cheaper alternatives. It’s the same as the restaurant directing you to the chicken meal that they’re making 200% profit on and away from the steak they’re only making 50% profit on. That’s business, arguing whether it’s right or wrong is silly.
Also, why do people make all of these arguments about check cards? If you write a check, it NEVER gets denied if you don’t have the money in your account.
In fact, it is EASIER today to avoid overdrafting your account than it has EVER been in the history of banking.

Michael says:

July 12th, 2007 at 8:41 pm

Mike, Mike, Mike

I entrust you soul-less bastards with my money and then you feel the ‘right’ to collect a ‘record $17.5 billion in overdraft loan fees in 2006′ for your industry?

Oh, and you ‘give’ me access to my accounts for free. God bless your graciousness! Maybe you’ll let me keep some of my money once in a while too.

Come on, poor banks?! Why is Congress about to investigate this fraudulent activity?

Anna says:

July 13th, 2007 at 5:08 am

I’d have to say that “Put more money in your account”, and “Blaming the bank for charging you overdraft fees is like blaming the police for arresting you after committing a crime” are some amazingly condescending comments.

I’m quite familiar with how banking works, and don’t blame banks for charging fees when a customer makes an unreasonable purchase without covering their expenses. I do, however, object to my overdrafts.

I’ve had situations where I’ve deposited into my account to ensure I had sufficient funds available to cover an unexpected large emergency expense later that day, and been charged an overdraft fee in spite of it, because the bank posted things in a different order. I find that especially unacceptable, because looking at a daily balance record for my account shows I was never overdrawn - it was only “overdrawn” for a magical few minutes when the database updated in an order that penalized me. And asking to have that fine removed was greeted with “no, but if you would like to come spend an hour sitting in a branch office, I’ll explain our timestamps to you to justify it.”

As a consumer I am hearing “I know that every single piece of documentation we give you about your account says you didn’t do anything wrong, but just trust us, because if come in to our office, we’ll look at a computer screen you aren’t allowed to see and tell you that our private version of your statement says something different - and by the way, that’s the one we use to decide if you get a penalty.”

“Just keep more money in your account to handle weird situations” isn’t practical advice to someone living on extremely minimal income. I’m very conscientious about checking my finances almost daily to avoid overdrafts, every time I plan to leave home to spend something. Getting an overdraft because the bank’s systems aren’t appropriately integrated is not a reason to charge me $35. Nor is it appropriate in my opinion, for example, when I dine at a restaurant, and find out the server erroneously charged my debit card 12 times for the same meal, and then be penalized for an overdraft while I sort that out with the restaurant. That isn’t a case where I am irresponsibly spending and trying to live beyond my means at the bank’s expense.

anon says:

July 13th, 2007 at 10:21 am

re: anna’s comments - THANK YOU. Exactly the point we as consumers are trying to make here.

I keep an extra $500 in my checking to avoid this stuff and it works but it’s DUMB that I have to waste that $500 in there earning no interest. Sure it’s responsible, but whatever, it’s irritating to have to stash that cash there for the bank’s mysterious, time-stamping ways. Surely there is a better solution.

Josh says:

July 13th, 2007 at 11:17 am

I banked with TCF, when they posted deposits and withdrawals in a different order than they were made. I over drafted 5 times. When I spoke with the manager he said that it is a toss up of who screwed up, so he would only charge me for 2 overdrafts ($70). I then went to close out my account with them, when he informed me that if I close my account the three waved fees will need to be considered. Since there is no minimum balance on that account I still have 1 cent in a TCF account. I now bank with US Bank which treats me very well. I now have overdraft protection which is free, and much better service. The moral of this long rant is that if your bank sucks, get a new one.

D.D. says:

July 13th, 2007 at 11:47 am

I bank at a credit union that automatically pulls money from a line of credit if I overdraw. Sure, I pay a few cents interest if that happens, but that’s vastly better than an overdraft fee. Every credit union I’ve used for the last, oh 17 years had such a feature. No bank I’ve use did. I wonder why that is.

Paul says:

July 13th, 2007 at 12:03 pm

For the record, I bank with US Bank and have for 20+ years (they were called First Bank back then). I have a service similar to D.D. and I only pay pennies every time the overdraft line kicks in. Anyone who’s frustrated with theri current back should go with US Bank.

Katie says:

July 13th, 2007 at 1:34 pm

I agree, Paul- USBank is the best! Debit card transactions go through the minute they are charged. I haven’t overdrafted since I switched to them about 5 years ago.

anon says:

July 16th, 2007 at 8:38 am

Maybe I should switch to TCU or USBank.

Scott says:

July 16th, 2007 at 12:30 pm

Scott says:

July 16th, 2007 at 12:31 pm

TODD says:

July 25th, 2007 at 3:24 pm

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Wednesday July 25, 2007 - 03:56pm (EDT) Permanent Link | 0 Comments
Entry for July 25, 2007
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Wednesday July 25, 2007 - 02:25pm (EDT) Permanent Link | 0 Comments

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Wednesday July 25, 2007 - 02:16pm (EDT) Permanent Link | 0 Comments

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