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Econwatch

August 10, 2009 9:13 AM

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Banks Cash In on Overdraft Fees

By: Alex Sundby
Topics: Banking

(AP Photo/Paul Sakuma)

Less than a year after the U.S. government bailed out banks and financial service companies with billions in taxpayer dollars, the banks are back to collecting billions from Americans without going through Uncle Sam.

U.S. banks will likely collect $38.5 billion from their customers in overdraft fees by the end of the year, according to a report in Monday's Financial Times. Many banks reacted to the financial crisis by increasing the fees for overdrafts and credit cards to keep profits up.

"Banks are returning to a fee-driven model and overdraft fees are the mother lode," Mike Moebs, founder of research company Moebs Services, told the FT.

The company's research shows most of these billions in fees are coming from the wallets of those hardest hit by the recession. Moebs found that customers with low credit scores tend to regularly overdraw from their bank accounts.

Banks defend the practice as a necessary cushion for the risk they take on. "Overdraft fees are there for a reason, we take on a lot of risk," a senior banker said. "It's a service to our customers, they want us to pay their overdrafts."

Some of the country's largest banks charged the highest fees, Moebs found. Among banks like Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, the median overdraft fee is set at $33.

The FT reported that at Bank of America, customers could be charged a $35 fee 10 times in a single day if they don't know they've overdrawn their accounts. If the customer doesn't pay, those fees, the bank charges another $35, pocketing a total of $335.

Bank of American told the FT that it was "committed to ensuring that our fees are transparent and predictable. We have a range of tools and services to give customers more control over their accounts and to prevent these fees."

Alex Sundby
Alex Sundby is an associate news editor for CBSNews.com

14 Comments +

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by ShesCrafty December 23, 2009 7:07 PM EST: To the people who don't understand why this is wrong - I will give you some examples:

I shop online, I have a paypal acct and I don't trust that somehow someone won't at some point access my money. Therefore, I try to keep everything in savings and manage small amounts at a time in my checking. I think that is reasonable. I watch it like a hawk, BUT:

I agree that if you make a mistake, pay for it. Here is the scenario: I made an error of $2-. I had a check come through the day that some 'pending debit transactions' were coming through (however the money had already been debited)...so instead of returning the check and charging me 1 fee of 35-, they paid the check and charged me 4 fees of 35- for 4 $2- transactions.

The scenario above of easily 10 overdrafts in a row for 35- going through at one time has happened to me before. I think it is thievery and disgraceful. I see my above scenario as an opportunity for the bank to make a decision to charge the customer 1 fee and return the check and honor the already debited transactions, but they chose to go the more profitable route and charge the maximum they can get out of you.

They know it is going to happen. They plan for this to happen.

I read an article not long ago that most overdraft fees are caused by minor errors in debit transactions. And then there is your domino effect.

There is something else that most people do not know. It is, of course, in the tiny writing in the packet you get with your checking acct. It says that the bank will cover up to a certain amount in debit transactions if you do not have funds available. But again, they charge you. Fine - if it is an emergency, that's great. However, they do this and this is where people get confused...the charge goes through, then the 35- fee and then you are completely messed up and there is the domino effect again. Especially if you are like me and don't like to keep a lot of money in the checking acct.

I had no idea about this policy and told my bank I wanted to opt out. I was tired of these fees, thinking if my card worked it was covered (we're talking only a couple of dollars that I may be off in what I think my balance is). I personally depend on my card to pay or not pay, depending on actual money I have in my acct. Don't pay it if it's not there. It's that simple. And this is the kind of scenario that the banks depend on to generate these overdraft revenues. Keyword: depend. on.

They say they provide a number of resources to help people not have overdrafts. I have yet to see 1. I believe, if this is a sincere statement to take care of the customer, they should provide a reference to these tools with every overdraft to every customer.

WA/Idaho, BofA won't link your savings to your checking acct to use as overdraft protection. You could have 1 million, or as I have had, 100,000, in your savings right there, the one linked to your checking, and you will get charged all of those fees. That's wrong. And they will not give a reason as to why this is not available in WA or Idaho. Upon inquiring about this, they said I could open another checking acct and link it to my original checking. So I did. Then I got a bunch of new overdrafts. Because they didn't tell me the proper information and that was also not bank policy. I had nobody to verify what they told me. So again, screwed.

Today on the phone with my bank I told the customer service rep that last time this whole overdraft situation happened I wanted to opt out of the 25- line of credit they give you. Because I had no idea about it and I certainly didn't want anymore fees. The rep said there was no data as to this conversation therefore it stood no ground and he could not honor that. And why would I make that up. He even said that nobody is suppose to know it is only 25- credit. Oh really? Why? See.

If you want overdraft protection, you need to get a line of credit. What if they won't give you a line of credit...As the above article states, they depend on people with the most financial restrictions to target.

To me, it's a bunch of bologna to say they are protecting themselves. They say the customers want these items paid. Really? I never got a call and was asked or asked that question while setting up the acct. I personally would have preferred they returned my check than pay it and charge me 4x 35-. Those 4 transactions were only 2- each.

I personally am going to take BofA to court over this situation even if it ends up costing me more money than the fees they charged me. Little precedents need to be set for big ones to finally take place.

What I don't understand is why congress would not pass the bill to not allow this. It's thievery and it is taking severe advantage of the American people. I picture the bank executives high five'g over the profit they have made, which sickens me.

I'm starting out the new year with a Credit Union...I suggest everyone do the same.; Reply to this comment


by latoyaswain1 September 16, 2009 11:25 PM EDT: I understand that everyone seems to be upset about overdraft fees, but honestly why is anyone upset? It would seem to me that if you don't want to pay overdraft fees then don't spend more than you have in your account. There was a news article recently where a young guy was in the military and his parents went to the news to complain about their son having to pay over $175 in overdraft fees. Well there were multiple charges that caused overdraft fees. A $8 charge & $6 charge and each one caused a $35 fee. All that says to me is that he spend $6 he did not have to begin with and continued to spend until the card did not approve anymore. How is that B of A's fault? Is he not keeping a transaction register or monitoring his account? Why should he get any of those fees back? I think it was totally unfair for B of A to refund any of those fees back when they were each his fault. He never said he was double charged or there was some mistake made. He, in essence, got a loan from B of A that he 1. did not have to apply for and 2. that he did not have to pay back. Bottom line, everyone knows that banks charge overdraft fees. If you don't want to pay them, write your transactions down.; Reply to this comment


by MHallanan September 14, 2009 7:09 PM EDT: thsi is not only NOT unusual,it is Bank of america common practice

Last month, my acount iver drew by 18.88, the overdraft was caused by bank of AMerica reposting a charge that was fraudulent. Reported as fraudulent and all BOS paperwork completed and submitted. they charged me 35.00 for the OD, then charged me 35.00 again for the OD caused by the FIRST Fee!
Pending TRANSFER FROM ACCT #1941 ON 09/13 VIA WEB Credit Pending $15.00 BAL $6.20

Pending BANK OF AMERICA ATM 09/13 #000000003568... Credit Pending $100.00 BAL -$8.80

View and enter additional information for Bank Charge for -$35.00
09/03/2009
FEE REBILL NON-SUFFICIENT FUNDS FEE REBILL Bank Charge Cleared
-$35.00 BAL -$108.80

View and enter additional information for Bank Charge for -$35.00
09/03/2009 OVERDRAFT ITEM FEE FOR ACTIVITY OF 09-02 Bank Charge Cleared -$35.00 BAL -$73.80

View and enter additional information for Transfer for -$20.00
09/02/2009 Online Banking transfer to CHK 1941.
Transfer Cleared -$20.00 BAL -$38.80

View and enter additional information for Debit for -$39.90
09/02/2009 ATM/CHECK CARD TEMPORARY CR REVERSAL
Debit Cleared -$39.90 BAL -$18.80

Best part is, the 20.00 transfer was 3 days before, not on 9/2 but on 8/30; Reply to this comment


by supim August 21, 2009 6:51 PM EDT: Well written article! Long overdue. Banks are making what should be ILLEGAL profits on mostly college students and the young. The overdraft protection service essentially treats your debit card as if it were a credit card. This service should be consentual and OPTIONAL. Instead it is not. Customers are FORCED to participate in a system that charges then 3500% interest for these non-consensual loans. This is CRIMINAL and should definitely be against the law. We need to continue agitating for regulations on these unscrupulous overdraft fees. If you get one, complain to your bank manager and demand a refund! These fees are targeted, calculated and planned to bring the banks $38 billion dollars in profit a year.

Legistlation should:
Make overdraft protection optional - STOP TREATING MY DEBIT CARD LIKE A CREDIT CARD --- WITHOUT MY CONSENT!
Warn customers with debit cards when they are about to overdraw and DO NOT ALLOW OVERDRAFTS for a debit card, unless the customer opts in.

The whole point of a debit card is that it forces you to only spend the money you have. Banks are forcing you to use a DEBIT-CREDIT card with a 3500 interest rate. THIS SHOULD BE CRIMINAL!; Reply to this comment


by tomanyt August 13, 2009 3:17 PM EDT: Dump your bank. Keep you money in your mattress.; Reply to this comment


by StephanKf August 13, 2009 1:54 PM EDT: In addition to the above, speaking with a branch rep who was so kind to show me the transactions, the 7x36 $ ones were booked/executed at 22pm yesterday at whcih time after execution i was technically still 10$ good. the 65$ one was processed at 2am on the 13th, which would brign me into OD by 50$ for which i had to pay 35$ODP fee. with that im fine. Now magically, quote: "thats how our system just works" it,let me use sorted, sorted the transaction processed on the 13th 2am (at whcih moment i ended up in 40$ OD, before my 7 other ones, processed a day before, to sum me up in OD. At this stage i need to question the legality of a "system that just works that way"....; Reply to this comment


by StephanKf August 13, 2009 12:09 PM EDT: I understand the protection idea, but highly doubt that they'd legally be able to charge 35$, or 33$ for <2USD transactions.
So if you happen to be in a situation like me, where you have seven 2USD transactions on Tuesday, and one 66$ transaction on wednesday, and fin on thursday that yove been put down to -50USD as the 66$ transaction had been processed first whilst your account is on 20$ (for in my eyes obvious reason) , its made sure youre already down by at -40$ (first 35$ ODP) and then allowign them to charge 35$ for all smaller transactions (7x35$). The fee model so far seems to be understandable and negotiable, but it is made sure by maintaining patience when youre low (actually 24hours from payday), to gain the maximum profit by..re arranging your bookings in the banks favor.

im very surprised that this kind of fee processign in the background is not federally audited, checked or approved somehow .

And there we are, argueing abour the bad economy. ANd anybody wonders when 14 Bucks overdraftign does cost the people 245$? (as i agree to a 35$ ODP fee for my 60$ transaction), ..or overdraftign an account for less then 24 hours by 50USD costs the consumer 280 bucks.?

Thats not only fraudulent, thats criminal.
Laws seem to protect the institution and not those who actually need the protection.

Im a customer for a while now, and have my paychecks coming in in time.3 times ive overdrafted, and today buying soem stamps, a coffee and fuel up does cost me best 350$.And in less then 24 hours my paycheck arrives.; Reply to this comment


by dragonfly74 August 11, 2009 4:15 AM EDT: It's time for the `ole Withdraw-Your-Money-From-The-Bank day. Maybe if 10 million people withdraw their money at the same time these banks will fix their fraudulent online banking software.; Reply to this comment

by zipperfalcon August 10, 2009 1:57 PM EDT

Use a credit union - they provide all the services of a bank except for the "Rip-You_Off" part.

Reply to this comment


by ianlou August 11, 2009 7:12 AM EDT: I agree.


by mypatch August 15, 2009 9:06 AM EDT: That's fine if you have perfect credit. Credit unions won't accept anyone with less than perfect credit. The article said that these fees are mostly aimed at low credit people. I say get rid of the checking account and go with money orders. Walmart and others give them free.

by afmcalax August 10, 2009 10:18 AM EDT

Banks are more criminal enterprises than real businesses anymore. Congress gave them plenty of time to rip off the consumer until even the weakest reforms take hold. Drug Cartels should get out of the drug business and buy a few banks; the profits are better and it's legal.

Reply to this comment


by Benton09 August 10, 2009 12:06 PM EDT: Pablo's Bank of Mexico & Coke Reserve?


by ffoulkes-2009 August 11, 2009 8:32 AM EDT: I had the displeasure of being a network tech for a major bank in my area some 7 years ago. I got thoroughly disgusted with the entire process watching the board bragging about how much in late fees and overdrafts they were taking in. I swore off banks as a place to work from then on.