I haven’t been keeping a close eye on the national debate about reforming banks’ outrageous overdraft fees, so when a letter arrived from my credit union this month saying something about the overdraft laws changing, my main response was… what? I know that banks make a bundle off the fees ($26 billion a year, actually). And I know that I hate overdraft fees with a fury normally reserved for TicketMaster, but since I cancelled my Bank of America account in January and switched to a credit union, I wasn’t sure whether the new rules were good for me, bad for me, or even applied to me.
- OSPIRG’s Jon Bartholomew. And his money.
This afternoon, I met up with OSPIRG advocate Jon Bartholomew. I’m one of the legion embittered ex-OSPIRG canvassers, but they did good work on financial reform this year, including putting together a report about the “tricks and traps” of banking in Oregon. Bartholomew (who, bonus fact, met his wife via the personals of our sister paper, The Stranger) walked me through the brave new world of overdraft fees.
Q: So what are the rules exactly? Can you just give me a rundown on what they actually mean? Well, first off a new rule came into effect last weekend that says banks can no longer automatically put you into their overdraft program for debit cards and ATMs.
So let’s say you have $10 in your account and you go to try and get $20 out of an ATM. What banks have been doing is putting you into a program where they’ll give you your $20 from the ATM, but then they’ll hit you with a $30 fee. What used to be the case in the past is that you just wouldn’t get your $20. That’s the situation people will be in now if they don’t opt in to the overdraft program. The new rules don’t apply to checks, so you will still get a $30 fee if you write a check and it bounces, or if you have an automatic withdrawal and there’s not enough money in your account, but you won’t be dinged for withdrawing too much on an ATM and debit cards.
Why focus on overdraft charges specifically? There’s a lot wrong with the financial system. Because they’re a manipulation by the banks that consumers often don’t know about. If you bounce a check, that’s your responsibility, you should be fined. But a lot of consumers don’t know that banks their banks are forcing them into overdraft programs and are reordering purchases to cause more fees. That’s deceptive.
What’s “reordering purchases” mean? Banks have made overdraft fees worse by reordering your debits. Let’s say you make five purchases in a day and you start off with only having $100 in the bank. Your first 4 purchases were, let’s say, coffee, McDonalds, food, all coming to less than $50. Then you go to Target and spend another $90. What banks used to do is reorder your purchases so that the big one would go through first, and you would get hit with three or four fees instead of just once.
Consumers have no idea that their banks are reordering their purchases. A judge in California just ordered Wells Fargo to stop doing this, but Bank of America is currently still doing this.
Okay, I opened my account in January and I don’t remember whether I chose overdraft protection. Do people with existing accounts still have to opt-out? Like, does this just affect new customers?
If you are in an overdraft protection plan, you will automatically be removed from it, unless you opt in. This means that some consumers will suddenly find that their card won’t work and they can’t buy that latte, but it’s better than overdrafting and getting charged $30.
Previously, some banks didn’t even allow you to opt out of overdraft programs. Many banks said ‘Sorry, no, this is part of our business and if you don’t want to be in the program, you have to switch banks.’ Now they can’t force you into it, and at any point you can opt back out.
Basically banks were turning debit cards into credit cards. That’s how I think of it. Chase hounded me with many many deceptive reading offers to opt in. Jerks. The only good thing about Chase is Ray at Uptown and Tony at Pearl. I look forward to next month when I join a local credit union. (WaMu was good early on but they sold the farm and bit the dust.) thanks for the article.
The amount of money I paid in my youth for overdraft charges from reordering purchases via US Bank is staggering. Chalk it up to my irresponsibility, but, without the reordering of my purchases I would guess that I would have paid maybe 1/2 of the charges I paid.
Are credit unions generally a better way to go with regards to these fees?
So let’s say you have $10 in your account and you go to try and get $20 out of an ATM. What banks have been doing is putting you into a program where they’ll give you your $20 from the ATM, but then they’ll hit you with a $30 fee.
What used to be the case in the past is that you just wouldn’t get your $20.
What was it it was not both ways
Jim, prior to 2001, most banks just wouldn’t let you get your money, or you had your checking linked to your savings account for overdrafts. I see how it could be a bit confusing.
and yes, credit unions are *likely* to be better on fees than big national banks. but some national banks are better than some credit unions, so you just need to be careful where you choose to go.
US Bank pulled some similar shenanigans on my a few years ago. Since I was poor and couldn’t keep a minimum balance of $500 in my savings I was only eligible for their “Super Savers” account. Every month they would automatically transfer X amount of dollars from my checking to savings. If X amount of dollars wasn’t available they would still ‘transfer’ it to my savings, leaving my checking at a negative balance, leaving me with a bunch of overdraft fees, and of course you don’t actually have that money in your savings because it didn’t exist in the first place. I told off the manager in the bank, switched to a credit union, and will NEVER bank corporate again.
The opt-in idea is a good one, all things considered. There are people who (rightly or wrongly) like to be able to use their debit card even if they don’t have enough funds in their checking account. They can opt-in to be able to do that; whereas other folks that don’t want to be able to do that won’t have to worry.
The opt-in requirement is a GREAT idea. But since the banks are going to miss out on so much free money, they’re being really rough with their efforts to get people to opt in. Lots of mailings about “you’re protection is going away!” “washington is limiting our ability to help you unless you check this box!”
There’s been articles on consumerist.com about a branch manager (at US Bank?) who finally quit because corporate was pushing him so hard to pressure customers in what he felt was an unethical way.
smirk did you happen to visit the coffee cart across the street from osbirg?
1. The only good thing about Chase is Patrick at Hawthorne.
2. Jon has the same debit card I do!
Credit unions are a bit better for the actual cost of fees. When I started at Unitus a few years ago it was $22. Now it’s $26. They’ve hosed me a few times on the reordering of purchases.
After having been with US Bank for 6 or 7 years and now Unitus for 2 or 3, the difference is night and day.
Key Bank holds your deposit until after the debits are posted in order to generate overdraft fees…..
Rivermart lets me slide once per year. They waive one overdraft per year.