Debit Cards’ Hidden Fees

Banks Earn Billions Off Overdrafts From Debit Cards Due To Unannounced Charges

(CBS)  When Lauren Tee, a college student from Atlanta, checked her bank account recently, she was caught by surprise.

"So this is your bank statement?” CBS News correspondent Anthony Mason asked.

“Right,” Tee said.

She was slightly overdrawn.

“I was at the supermarket, spent $25, went over my account balance $5,” Tee explained.

Without telling her she was overdrawn, her bank covered the $5, but charged her $25 for that loan.

"I think they're sucking money out of the consumers,” she said.

Banks are cashing in on overdrafts, raking in more than $17 billion in fees last year, according to the Center for Responsible Lending — up from $10 billion just two years ago.

"And the single largest use of overdrafts was using your debit card. And those debit card purchases are very small,” said Eric Halperin from the Center for Responsible Lending.

The average overdraft is about $16. The average bank fee, $34 — for a loan that is typically paid off in less than five days.

"If you were to calculate an annual percentage rate interest for that loan, it would usually be well into the five digits. So more than 10,000 percent,” Halperin said.

What’s more, these overdraft loans aren’t covered under the Federal Reserve’s Truth in Lending Act, so banks and credit unions aren’t obligated to tell you about those astronomical interest rates.

Rep. Carolyn Maloney, D-N.Y., said: "Consumers should have the right to decline this service and the fee."

Congress today began considering legislation to give customers more information and protection. But the banks said the burden should be on the account holder.

"At the end of the day only the consumer does know their balance,” said Nessa Feddis of the American Bankers Association.

You can instruct your bank not to pay overdrafts to avoid those exorbitant fees.

Banks used to discourage “insufficient funds,” but now they’ve become a profit center.

[cantshutup]

yeah, they forgot to mention that if you use your debit card to purchase gas, that the gas station will put a hold on your funds till the transaction goes through...that doesn't happen say if you use it at wal-mart because wal-mart wants your money right then and they have a system that does that...take the time to go to an ATM and get cash otherwise you'll have the same problem...

[cantshutup]

*all your funds in the bank that is...buy $20 worth of gas and have $50 bucks?...they'll hold the $50 till the transaction goes through...

[itgranny]

And they always count your checks before your deposits. Over the weekend, I took money from savings and put into checking online and then went shopping. They counted the checks and debit card purchases before they counted the deposit thus i got charged.

I've heard of folks hiding their money at their houses instead of using banks, i can't say as they're totally crazy. In some cases, with the banks laying awake nights thinking up ways to nail their customers, its safer!

[dakotaclark]

Hmmm...

It is no secret that banks harvest dollars at every opportunity.

It is particularly annoying to save the deposits for last, in the hopes of causing overdrafts.

The overdraft fees are outageous.

There should be state and federal laws that try to protect consumers, by setting limits on what banks can charge is such circumstances.

[nothappyatall]

"%u201CI was at the supermarket, spent $25, went over my account balance $5,%u201D Tee explained.

Without telling her she was overdrawn, her bank covered the $5, but charged her $25 for that loan."

SORRY, but it is up to YOU to keep track of your money not the bank to tell you that you are overdrawn the instant you are! It can take several days to a week to get snail-mailed the notice and if you are already overdrawn enough to get a bounced check charge then any checks you write after that will also carry that fee.

Keep better track of your money and don't whine when you are careless and screw up- we've all done it, you've done it, I've done it, the fees are outrageous but again it's YOUR money and up to you to learn how to manage it and have overdraft protection or hooked up to a savings acct with $100 in it.

[tburzio]

If you are overdrawn by spending $25, use cash!

[kevsan1]

You can be as responsible as you want with your money and then get socked by some fee. You can even have an overdraft line of credit and expect it to be there, but the bank suddenly decides you're a risk and without any warning shuts down access to that line and doesn't notify you of their action until a week later. Meanwhile, checks bounce and you get overdraft fees. Meanwhile, you call to complain and they act all cocky. They are plain and simple greedy and worse. That happened to me. They should be prohibited from some of their more draconian practices, especially since they are raking in billions like the oil companies. Another practice they should be prohibited from doing... having three different centers call and try to collect if you're late and none "seem" to know what the other is up to, with all trying to get more than what's due. I've seen it all. Sorry, newster1, a little more compassion is in order on your part in this matter.

Forget all the social ***!

Just decline the purchase if there isn't money in the account to cover it.

So *** simple - duh!

[mufuart]

I think that bank practice equates to theft. If I don't have sufficient funds, then the transaction should show up as NOT APPROVED, without exception, unless one has an OPT-IN overdraft agreement with the bank to allow it; not OPT-OUT that consumers are NOW faced with. It's infuriating.

[paulam01-2009]

I work in a supermarket with a bank that has a branch within the supermarket. One of my friends has a partner with a disability and needed to have a bank account for direct deposit. The bank encouraged my friend to also have her funds direct deposited; assuring her that she didn't need money....just a debit card.
A $.35 mistake in her checking account was responsible for more than $300 in bank overdraft charges. And it wasn't like she was buying big ticket items. After the "overdraw" she spent $2.00 for a coffee at Starbucks. When she arrived at work she bought a coffee. She bought lunch. She bought another bottle of Coke. She bought some things to take home for dinner. She bought another coffee at Starbucks on the way home from work; and purchased a transit pass for the next month....to be able to ride the bus to work.....and not once was her debit card declined. None of these purchases was more than $20, but she was charged $35 for every purchase as a bounced check fee. Mistakes happen, why weren't the charges declined?

[emmac6]

Yes, people need to keep track of their money--but banks are also to blame by their unfair deposit practices.

I and people I know have had banks put their deposit checks on hold because they were "checks from a college university", checks that "were too large", checks that were "personal checks", checks that were "out of state", and sometimes they will hold a check up to 10 days if you have an overdraft, which gives them several days to have you incur additional overdraft fees.

Someone I know was depositing a check from a well known insurance company and they put the check on hold--despite the fact she had been a bank customer for ten years w/o ever incurring an overdraft. The amount was over 10,000 but she only wanted 1000 to be available to cover her mortgage. They put the check on hold for 10 days. In this day of electronic funds the bank knows if that check is good or not in minutes.

[truth-teller-2009]

If you didn't sleep through high school, you might remeber how the mathematically-true (EFFECTIVE) annual percentage rate (APR) is calculated: ((i+1)^(365/d))-1 ... pretty simple. When the Truth-In-Lending Act (TILA) was passed in 1968 there was no ubiquitous calculator that could calculate compounding. Congress adopted the NOMINAL APR, simple interest rate ... the rate for a period times the number of periods in a year as: i*365/d. In your example of a $25 charge on $5 for 5 days that simple interest (also called the Actuarial APR, also U S Rule APR)is 25/5*100*365/5, which is 36,500%. Hold onto your pants, the mathematically-true (EFFECTIVE) APR is calculated: (((25/5*) 1)^365/5)-1, which equals 6.383 X 10^56. Wouldn't you like to get that on you IRA? The TILA should be changed to include all fees and should used the EFFECTIVE APR.

[jlwesley]

what is really bad, they will charge an overdraft fee on every check or charge on that day even if you have funds to cover all but one of the items.

I had 2200 dollars worth of checks hit one day, total of 11 checks and 2 debit card charges, the account was overdrawn after all checks and debits, 12 dollars. they charged me an overdraft fee of 34 dollars for 13 transactions, the really bad part, I was overdrawn only because of uncollected funds, I will never understand why a check drawn on my account is debited instantly, but any that I deposit end up on hold for 3 to 5 days, the banks are sticking it to us and we aren't even getting a kiss.

[michellem99-2009]

Okay people, You can see to bal your check book.You whine. I have never had the problems. I khow what is in the back in my account. We call to be sure, then write checks,be sure they are recorded.Fine. The bank fees are recorded. It is better to have a few dollrs more for bank fee. You never ever spent that money set a side for bank fees. It is the bank's money. Than I know how much I have to use debit card on. Every debit is recrded. I do not go over. I go to store and they give my a recept and I have a place to keep them. So when I go to the next I know what is what is there minus what I just bought. So when it shows 5 dollars that is written then the debit card it put away until next month. I am 52. lEGALLY BLIND TOO.

[jetranger7]

THIS IS WHY ANYMORE , I PAY CASH FOR EVERYTHING, OR I WAIT TILL I HAVE THE CASH ! OBVIOUSLY, WE CAN NO LONGER TRUST THE BANKS ANYMORE OR THE ACCOUNTING PRACTICES. THEIR IN BUSINESS TO RIP-OFF THE CONSUMER, SO THE CEOs AND PRESIDENTS OF THE INSTUTION CAN MAKE BILLIONS OF DOLLARS AND THEY GET HEFTY RAISES AND BONUSES FOR DOING IT AT YOUR EXPENSE. THEY KNOW MANY OR MOST AMERICANS ARE WORKING LONGER HOURS, HAVE LESS TIME TO TAKE CARE OF BUSINESS AT HOME AND THEY HOPE YOU WON'T CATCH THEIR FRAUDULENT ACCOUNTING PRACTICES, AND HOPE YOU WON'T TAKE THE TIME TO CALL THEM ON IT. THEY ALSO HOPE TO BOONDOOGGLE YOU TO THE POINT, THAT YOU'LL FELL ITS USELESS TO FIGHT WITH THEM, MUCH LIKE THE CELL PHONE COMPANIES AND CREDIT CARD COMPANIES ! WASN'T LIKE THIS IN THE 1970s, AND EARLY 80s, BUT TOO MANY OF THESE OVER-EDUCATED COLLEGE JERKS, FOUND A WAY TO MAKE MONEY BESIDES ACTUALLY WORKING AND PROVIDING A DECENT REPUTABLE HONEST SERVICE TO THEIR CUSTOMERS BY RIPPING THEM OFF, ESPECIALLY THESE BIG NATIONAL BANKS WHICH I REFUSE TO DO BUSINESS WITH EVER , LIKE BOA. SUGGESTION, DEAL ONLY WITH A LOCAL HOME TOWN BANK IN YOUR AREA, KEEP CASH AT HOME IN A SAFE HIDDEN PLACE, DON'T USE CREDIT CARDS TO PURCHASE ANYTHING, AND LETS ALL HELP SOME OF THESE BIG NATIONAL NATIONWIDE BANKS GO OUT OF BUSINESS !!! IF WE ALL PARTICIPATE WE CAN GET IT DONE, SOON THEY'LL BE CLOSING THEIR DOORS AND THE FRAUDSTERS AND CON-ARTISTS WILL BE GONE !!!

[chinesespy]

only stupid people become overdrawn..learn to count

[dragonmouse-2009]

First of all. Regardless if it's $5 or $50 that you're overdrawn on...if you had written a check and it bounced both the bank AND the merchant would have charged you a pretty heafty sum of money.

Everything is run by a computer that says oh look there's not enough money here...if the amount is under so much let the card go through and charge $25. How annoyed do you think people get if they've been shopping and the card is flat out DENIED?

And here's something for you. All of this information IS disclosed in the paperwork when you open an account. Why is it so hard for people to actually READ the fine print for once.

[shoujoboy-2009]

I'd normally laugh at the people who overdraft in the first place but in some circumstances it can become easy to do. I do a lot of preordering of DVD's and whatnot online and there will be times that something comes out on the 15th but somehow ends up shipping on the 2nd. $20 I wasn't expecting for another few weeks throws my plan off. I keep a spreadsheet of all my financial issues but sometimes it goes awry. Only way to make sure you're good is to pad that account just a bit more just to be safe.

[rainyday9]

Read JetRanger7's comments. It is right on. STOP doing business with a huge bank that doesn't know you from any other of their millions of customers. Your $32 is not important to them with their billions. KEEP it. Pay cash.

[jennal1]

ok, so i work at a credit union, and let me just say--if someone goes overdrawn, that is their own fault that they are getting fees. Know your balance and don't dip into the "bank's money" then there is no problem and no fees. It's that simple--if you don't have enough money, don't buy something with the money you obviously don't have. If the bank fees you it is because you borrowed money from them without "asking" so they can charge whatever they want--know your balance...its that simple.

[prplflwrz]

I commend all of you who never make a mistake on your account balances. I'm trying hard to curb my laziness and have broken out the magnifying glass to read all fine print. But come on, there are many unscroupulous bank practices that make it very easy for mistakes to happen. I was banking at boa, a Thursday afternoon close to 5PM. I was depositing a check, and needed that money to write a check. There was a clearly posted sign at the teller's window stating that "all deposits made after 3 would be posted the following business day". I double checked that policy with the teller to make sure. To my surprise the teller told me that since it was 5PM, it was already considered the next business day(Friday), so the deposit would not actually post until MONDAY! Now, had I simply followed the rules on the sign, I would have written my check anytime up to Monday morning and overdrawn my account, because a check you write posts immediately. Why wasn't the entire deposit policy stated on the sign? The bank's oversight, I'm sure.

[afmca]

It is amazing so many support an industry that makes its living charging exhorbitant fees and manipulating transaction timing.

1. explain to me how a bank can receive my credit card payment at 9 AM and have it OUT of my account by 10 AM, but still insists it takes 2-3 days to clear an out of state check.

2. why do banks move transactions posted after Noon to the next day? They are already processed in the system.

3. why do I get charged for a bad check written by someone else? I would not of knowingly deposited it if I knew it was going to bounce?

4. why is there no proportion to the charge versus the overdraft? Going $5 over is bad, but getting charged $25 for doing it is criminal.

5. Why don't the banks verify that you actually have the money in the bank before approving the transaction?

Come on .. the new banking rules put into affect after 9/11 were to benefit the banks not the consumer. This is just another example of our fine politicians rolling over for the money versus protecting the rights of their constituents.

[bombadil4]

As a previous writer noted, we are becoming a society WAY WAY too accepting of being victimized by the combination of special-interest controlled politicians, coroporate greed, the eroision of the middle class, and sheer imcompetence. In return, we work longer hours and with far less (or no) vacation/sick leave compared to most of the rest of the industrialised world. Millions work with no health care benefits. Yes we should all take some personal responsibility when we deal with banks, credit card companies, etc. But the fact is with so many barely making it from paycheck to paycheck, these ludicrous fees are of course specifically designed to ensnare as many people as possible. My all time favorite "fee" is when you buy phone service only to find that you also need to pay a "connection fee." I am anxiously waiting for the first time the company has to come out and fix something because I intend to impose a parking fee on the service truck.

[Syndicate]

Use Cash. Keep your money in your mattress. this makes it harder to steal it. I've ran into these fees. Its pretty easy when you have two people using the same account.

[legsec007]

I agree that no one should overdraw their account - but the banks have gotten ridiculous. At my bank, SunTrust, if you make a large deposit - they put a hold on it - ever AFTER they have collected the funds. I deposited a large check from my 401(K) - so it was drawn on reputable bank - and I have had this same checking account for 15 years. Not only did the bank continue to "hold" my money AFTER the funds were collected - they returned my electric payment and charged me a fee - while all the very small debit card transactions were paid, with $35.00 charged each time. So for less than $200 in debit card charges that they paid - I was charged nearly $500 in fees (they were small transactions) - PLUS I had the money in the account - they were just holding it. Go figure. since the banking industry can pool together and hire lobbyists - consumers are in a tough spot. Funny - I walked into the lobby of my bank and see a sign about relationship building, etc. There is no relationship in banking anymore - they know me, have my money, are earning interst on my money, yet won't allow me access. Don't bother calling the 800 number to discuss - they are robots who say Loss Prevention put the hold on it - and you are not allowed to talk to Loss Prevention!

[greystreeter]

These fees are outrageous and the banks make a killing off them. Of course consumers should be well aware of their balance but these NSF fees should at least be required under the Truth and Lending Act.

Transparency is what we need, which is why I'm working with Unfaircreditcardfees dot com to educate consumers about another hidden fee, the interchange. It's costing consumers over $30 billion a year and Visa and MasterCard are laughing all the way to the bank. No pun intended.

[enriquecaliente]

Bankers are all green eyed thieves. ATM's replaced bank tellers. If you go to a bank with eight teller windows, that's an old bank outlet.
What you'll find there are two tellers at the most. The other 4 tellers are history. The bank got rid of 4 paychecks, with the attached benefits that they'd pay their employee. Think of the money they saved. Now they shop around for ATM's and the companies that make them give them (the banks) a big break on the price and maintenance. That's the main reason the banks went to ATM's in the first place. It is way cheaper then having a live person there. In the age of computing, you shouldn't have to wait to have any transaction post. When they figure out how to charge you for the pens at the teller window, they'll do that too. The biggest and strongest lobbyist are the banking industry. They run this country and have all the politicians in their pockets.

[ne_patriot7]

Banking fees have become one big ripoff..

JP Morgan Chase (3rd largest bank in the USA) only got into online payments of mortgages within the past couple of years. When they first started, I made a payment with EFT from my checking account (different bank) and was absolutely stunned to get an email back telling me they received my payment request "and the check will be sent the next day"...??? HUH??? what the hell??? Yea, 5 days later I get confirmation of payment... DUH... this jerkwade bank was actually cutting a check and sending it to itself... How freakin' archaic is that??

They have since managed to figure out how to do an EFT without mailing themselves a check, but it still takes 3 BUSINESS DAYS before my account is credited..
I have a visa from a much smaller bank that I also pay online... and I get confirmation back of payment completed within 5 hours... Go figure..

[michellem99-2009]

I am legally blind and the print is too small for me with a magnifier and I use one you can't buy in the store. They NEED to get off their asre and make it bigger and they won't even with ADA. Banks don't trust each other. They used to. I don't order anything from the net. Nosah. You use common sense if they know you their computer systems don't. IF I have a bal of set sum than I don't go over it. I would use cash but I don't want to b robbrd for it. Think before you buy. I can take cash out of my account if I have the funds to do so. Then use the cash to buy what ever.

[cntrydan]

The difference between the banking industry and a common thief is simple. One uses money, lobbyists, lawyers, and deceit to steal from you, the other uses a gun. I have more respect for the thief. At least he has to take some risk. The banker merely sits in a fine office, clicks a mouse, takes your money,and blames it on you. Here is how to stop it. Demand your pay in cash, and spend cash. In only a week, you will be better off, and they will be on their knees.

[txgirl81]

I work at a credit union and we waive first time fees or fees that were caused by our error. We take everyone's individual situation into consideration when deciding whether or not to waive a fee. Larger banks are not as forgiving. When we offer our overdaft program to new members we ask them if they would like to participate if they don't their debit card will be declined if funds are not available. However, some people like to have the overdraft loan program in case of an emergency or to avoid embarrassment. Ultimately, it should be the customers choice.

to answer previous questions:

It takes a physical check a couple days to clear because the checks have to be run thru a clearing house to make sure they will be paid. An electronic payment is a bit different and therefore is a lot faster to process.

when you sign the back of a check you are putting your endorsement on it which means that you are responsible for it. Same situation if someone signs a check over to you and you sign it you become the owner of it. If you are gonna receive funds from a check you are responsible for the funds. (Believe me there are a lot of people who knowingly try to cash or deposit checks that will bounce.)

[gabbysmomrs]

I know, I know, we shouldn't get into a mess with overdrafts...since I have started banking online and checking my account balance daily, I had not had any problems. Recently however, I didn't know an automatic payment of $7.00 had hit my account. The result was a $2.00 overdraft and a $35.00 fee. I used to have overdraft protection and it disappeared one day...no wonder, the overdraft fees are a gold mine for these people.

[misssuzq]

I was becoming more and more poor with these fees and my paydays.

I was lucky enough to have some savings and moved it to the checking and I am not overdrawn anymore.

And less poor.

[keithle1]

How about doing something really crazy? Paying with cash. You know, folding money. I'm always behind people pulling out their precious debit cards to pay for a cup of coffee that's less than $3. Insane. Banks are ought to nickel & dime you to death. They hope you're not paying attention & not checking your statements. ATM's
are a nice money maker.