Saturday, December 22, 2007

Out of Balance: Overdraft Fees Sting Consumers for $17.5 billion

Ouch. Overdraft fees are a major ripoff and banks are rigging the system to get more bang out of our bucks. That's the word from a new survey. This guest post features details:

"U.S. banks and credit unions are using abusive overdraft loans to generate $17.5 billion in fees each year, according to a major new study, entitled “Out of Balance,” from the nonprofit Center for Responsible Lending (CRL).

The study finds that financial institutions are deliberately using overdraft systems that are designed to generate more overdrafts from customers, resulting in enormous fees for banks and credit unions.

“Some of our largest financial institutions are hiding behind a smokescreen of misleading terms and murky practices that encourage costly overdrafts,” said Eric Halperin, director of the CRL Washington, D.C. office. “Banks should protect customers’ funds, not plunder them with high fees and harmful practices.”

As the report explains: “In a system enormously out of balance, consumers pay $17.5 billion in fees for $15.8 billion in abusive overdraft loans.” In addition, the report finds that debit card overdrafts are now the single largest source of overdraft fees.The $17.5 billion in fees is an increase over CRL’s 2005 estimate of $10.3 billion in overdraft fees.

Unfair bank practices identified in the CRL report include:

(1) posting charges against a checking account quickly while intentionally delaying the posting of deposits,

(2) lowering account balances by re-ordering debits to clear higher-dollar items first, and

(3) failing to warn a customer during debit card point-of-sale or ATM transactions if they are about to overdraw their account so that they may cancel the transaction if they choose

The Center for Responsible Lending is a national nonprofit, nonpartisan research and policy organization dedicated to protecting home ownership and family wealth by working to eliminate abusive financial practices. "

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Previous Posts
Today:

Guest Post: Don't Waste Money on Insurance for Rental Cars

Yesterday:
Hearts, Diamonds & Dollars: Tips from Warren Buffett & Cotton Threads
The Car Repair Fund & Other $$$ Goals for 2008
How to Sell Plasma TVs!?! Beware of Free CDs w/Biz & Tax Tips

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2 comments:

LongBeachBabe said...

This has happened to me several times before with one of the banks that I use (Northfork Bank)and I know I have cash in there. I swear it's a scam too for them to make $$$. And forget about getting someone to be sympathetic or waive the charges. I think the employees are trained to turn a deaf ear towards the customers in this area.

A lot of personal finance blogs I have read suggest to just not use a debit card and take the cash out from the teller to prevent this from happening.

Frugal Duchess said...

Hi LBB:

I totally agree. There really is a deliberate bank strategy to maximize fee income.

I've heard horror stories in which deposits have been credited to an account AFTER checks have been posted in order to create bounced check fees.

Thanks for your comments.
Take Care,
Sharon