Payday Loans Say It Straight, Unlike Bank Overdrafts

Unlike payday loans that are required by the Truth in Lending Act (TILA) to clearly publish and inform consumers of terms, conditions and percentage rates charged, bank overdraft fees are deceiving customers. They lead them astray by not giving them to option to inform their bank whether they want this expensive service attached to their checking account.

An overdraft primer

Historically, if a consumer attempted a transaction that would overdraw his or her checking account, their bank used its discretion to determine whether to pay the overdraft. If paid, the bank charged a significant fee for the service. In recent years, many banks and credit unions have automated the overdraft process. Coverage varies by institution; consumers who meet criteria are automatically enrolled.

In the past, overdrafts generally covered only check transactions. Today, ATM withdrawals, automated clearinghouse (ACH) transactions, point-of-sale debit card transactions, preauthorized automatic debits, telephone fund transfers and online banking transactions are also covered. Institutions typically charge a flat fee for each overdraft, regardless of the amount of the overdraft. A daily fee also may apply for each day the account remains overdrawn. This simply isn’t the case with an entirely straightforward payday loans.

Federal Reserve Board, OTS and NCUA say “no”

In a May 2008 proposal, the Board, Office of Thrift Supervision and National Credit Union Association proposed to adopt rules prohibiting unfair overdraft practices. One provision would prohibit consumers from being charged for overdraft protection unless they’re given notice and a reasonable opportunity to opt out of the service, and the consumer does not opt out.

The agencies also proposed to prohibit assessing an overdraft fee where the overdraft would not have occurred but for a hold placed on funds that exceeds the actual purchase or transaction amount.

New rules aren’t in place yet, but give it time

All banks will eventually be required to provide its customers with the right to opt out of the overdraft protection as incurred from ATM withdrawals and one-time debit card transactions. The Board is also proposing that banks obtain a consumer’s consent (opt-in) before overdraft protection could go into effect for ATM withdrawals in the first place.

Balance disclosure and transaction clearing

The fashion in which banks and credit unions disclose balance is also under investigation by the agencies. They noted that consumers could be misled by balance disclosures that include additional funds that a bank may provide to cover an overdraft.

Transaction clearing practices will also have to be made entirely more clear to consumers, as financial institutions often processed transactions not in the order that they occur, but “stack” them so that larger ones will hit first, even if they occur much later than smaller deductions. This creates a situation where customers are paying overdraft fees for even the smallest transactions.

If you’re short, DON’T overdraft

No fax payday loans are easy to understand, upfront about terms and fees and less expensive than overdraft protection. During a busy holiday shopping season, using overdraft protection like a safety net can be dangerous for your budget indeed. Be smart, know your budget and look to payday loans to fill your budget holes with just enough to get you through until your next payday.

Related articles

• The cost of banking
• U.S. Seeks New Curbs on Credit-Card Practices
• Are Reward Checking Accounts Worth It?