Hot on the heels of upcoming tighter restrictions in the American credit card industry is increasing discussion of whether strict new rules governing debit card overdraft fees could be coming next. It’s not a newsflash that “overdraft protection” is really not much protection at all inasmuch as it refers to customers’ financial wellbeing. In this day and age, banks may charge as much as thirty-five or forty dollars per bounced transaction – and a spate of lawsuits have accused these institutions of deliberately reordering the clearance of debits so that the most fees possible are being charged to the account. With lawmakers already in the mindset of creating new protections, there has been much talk that debit cards could potentially come next.
The New York Times recently ran an article on the epidemic of high bank fees, and how customers are fighting back. Some of the customers profiled in the story have ran up nightmarish amounts of penalties – I’m talking hundreds of dollars in fees, including thirty-five dollar strikes for cups of coffee at Starbucks and a student-priced movie theater ticket. Nobody disputes the fact that folks making payments in excess of their checking account balances ought to be held accountable, of course. It’s the size of these fees, as well as how they are determined, that is the problem – and also the fact that those customers being charged the excessive fees are often those least able to part with the money to pay them.
Banks refer to “overdraft protection” as if it is something that is a courtesy to customers. And, indeed, if you ask banks why they even allow customers to run over their account balances, they will say that they are doing consumers a favor by making sure they don’t encounter a situation in which they are embarrassed by having a transaction declined at the cash register. Yet, customers who are willing to take that risk and request having this “protection” removed will find that the bank is unwilling to grant their demand.
In truth, overdrafts are one hundred percent more for the banks’ sake than for customers’. Banks make a LOT of money off these fees – over twenty billion dollars last year, to give you an idea. Banks that once made the lion’s share of profits from credit cards have now turned to bank fees as a more reliable way of bringing in the bucks. As tends to be the case, of course, banks are getting greedy. Customers will generate plenty of overdrafts by themselves, of course. Banks have been accused of trying to up their ante by manipulating the order in which a customer’s transactions go through, so as to garner the most fees possible.
It could be that the gravy train is about to run out of gas, however. Federal regulators have been threatening banks with overdraft reform for the better part of this decade, but mounting consumer outrage is making a return on those threats increasingly more likely. Lawmakers say that an industry reform bill could be introduced by this year’s end. None of the talks center on ending overdraft fees, despite the financial industry’s claims. The proposals to date all center around cutting the cost of these charges and making the penalties fairer to consumers. One potential reform measure would require banks to get permission from consumers before automatically enrolling them for “protections” that they neither requested nor want for themselves. Banks could also be required to warn consumers when a debit transaction will trigger an overdraft, and/or prohibited from reordering transactions to put through the biggest charges first.
In the meantime, consumers can be their own best advocates by keeping a keen eye on their bank account, and making sure they do not overspend.
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