Merchants are starting to move away from debit and credit cards, as the interchange fees they have to pay banks to get paid are cumbersome and expensive. Photo: MoneyBlogNewz/Flickr.com/CC-BY

There is a huge showdown going on between banks, merchants, regulators and legislators over interchange fees on credit cards and debit cards. Interchange fees are charged to merchants every time a customer uses a card, and the controversy over the fees is leading businesses to rebel against the way things have been done for years.

Card fees becoming less palatable to businesses

Some people may have noticed that coffee shops, gas stations and other businesses have begun imposing a minimum purchase amount a person has to make in order to use a debit card or credit card, and there’s a reason for it. It’s called an interchange fee, and the bank that a person has their credit or debit card through charges a fee to pay the customer’s charge, and it costs, on average, 44 cents according to CNN. Banks are fighting furiously to keep the fees as they are because they make billions for the banking industry. Merchants are championing the legislation because they are fed up with having to pay banks to get money they are owed. Anthem Blue Cross, according to the Los Angeles Times, is going to start charging customers to make automatic payments from their credit or debit card account.

Credit card companies moving into prepaid cards

Some credit card companies are moving into the prepaid card market. For instance, American Express recently announced that it is launching a new prepaid debit card, according to Time. Visa and MasterCard already offer them, along with companies like GreenDot and others. It turns out there’s a good reason. Prepaid debit cards, which have to be reloaded with cash but don’t have overdraft fees and don’t require a bank account to get, aren’t subject to the same regulations. GreenDot, according to Reuters, derived 30 percent of its income in 2010 from interchange fees and, unlike debit card counterparts from Bank of America or JPMorgan Chase, prepaid debit cards are exempted from the interchange fee cap.

It’s chip to be Square

Not everyone has to accept traditional payments systems or opt to only accept cash. Mobile payment system technology is starting to increase its presence in the marketplace. For instance, the Square mobile payment system has a card reader that plugs into a smartphone, and users can download the Square application to begin accepting payments through mobile devices. It’s compatible with Android phones, iPhones and iPads. Square is also working on a payment network in which merchants using the service can deduct payments from a person’s debit or credit account by simply verifying the customer’s identity and don’t have to swipe a card, according to the Washington Post. There are also Near-Field Communication systems being implemented nationwide. NFC technology uses a chip mounted in a card or a cellular phone that a reader registers and charges the appropriate linked account. South Korea, according to Reuters, plans to have 300,000 NFC equipped merchants by the end of the year.

Sources

CNN

Los Angeles Times

Time

Reuters on Green Dot

Washington Post

Reuters on mobile payment systems

New American Express prepaid debit card coming next Tuesday. Image: AMERICANEXPRESSONLINE/Flickr/CC BY

American Express will start issuing a new prepaid debit card June 21. The company, previously known for aiming at higher-end, luxury buyers, is staking new ground by targeting the average consumer. Other card-issuers are expected to follow suit.

Building on the PASS card

Lat year, American Express introduced the PASS prepaid card, designed to help parents to keep their children on a financial leash. However, the company soon realized that prepaid cards had a far greater potential. Last year, According to the industry group Network Branded Prepaid Card Association, U.S. consumers spent about $37 billion on prepaid cards.  That is double the amount from last year and quadruple the figure from 2008.

Reaching a large demographic

Dan Schulman of American Express stated, “this card is for everyone. It could be for a parent who wants to give their kid a card, it could be for someone who doesn’t have access to credit. It’s a very large market that spans demographics.”

No bank is required  for the new cards, and there is a built-in safeguard against debt. A consumers can only spend what is loaded onto the card.

A promise of minimal fees

American Express promises to shave the fees normally associated with prepaid cards. The company will charge a fee of $4.95 when money is loaded onto the card, although no fee is charged if money is transferred from an existing bank account. The only other fee is a $2 charge whenever the card is used at an ATM. Card holders, however, are allowed one free ATM transaction per month.

Other benefits of the new card

The American Express card will come with online history and balance checks. In addition, card users will receive the other benefits associated with American Express cards, such as purchase protection and roadside assistance.

Other card issuers likely to follow

Given the growth in the prepaid card industry, other banks and card-issuers are expected to follow in the footsteps of American Express. Gerri Detweiler, personal finance expert at Credit.com, said, “I can’t imagine that every large issuer isn’t looking hard at prepaid cards right now.”

Not affected by credit card legislation

Consumer groups warn that prepaid cards are not covered by the CARD Act, which Congress passed last year to limit credit card fees. Prepaid cards are also exempt from the Durbin Amendment, a law soon to take effect that limits “swipe fees,” the fees that banks charge retailers when customers use debit cards. Banks may see the prepaid card as a alternative source of revenue lost from other card transactions and take advantage of the loophole.

The American Express prepaid card will be available at no cost online and will later be available in drug stores and other retail locations. The card purchase fee will be about $5.

Sources

Huffington Post
CNN
Chicago Tribune

Wells Fargo and other banks are ending debit rewards programs as financial reform efforts are eating into their bottom line. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The costs of financial reform are adding up as a potential curb on interchange fees is causing banks to cancel debit card reward programs. Financial reform legislation has caused ripple effects, and the effort to legislate fairer conditions for consumers is leading to more restrictive conditions for consumers. Lawmakers are beginning to balk at the high cost of such laws.

Interchange fee cap may deprive consumers in effort to protect them

The proposed cap on interchange fees or “swipe fees,” which merchants must pay banks to complete debit card transactions, has already led to major banks trying to save money any way possible. Free checking programs and debit card rewards have landed on the chopping block. JP Morgan Chase ended its debit card rewards program and more are following suit, according to CNN. Wells Fargo subsidiary Wachovia has stopped offering debit rewards to new customers, and Wells Fargo will do likewise on April 15. Citibank recently disclosed that the bank is “in the process of evaluating potential changes,” which means it is likely going to cut debit rewards programs for customers as well.

Costs of financial reform adding up

A recent estimate by the Government Accountability Office placed a price tag of $1 billion per year on the Dodd Frank Act, or the financial reform bill, according to USA Today. The creation of a totally new agency, the Consumer Financial Protection Bureau, has already caused controversy and infighting among lawmakers. The GAO estimated that federal agencies would need to hire more than 2,000 people to enforce the laws, including any the CFPB would be enforcing. Congressional Republicans have been openly critical of the agency, which some assert has too much authority. The special adviser to the president in charge of setting up the agency, Elizabeth Warren, has defended the agency, saying that the “Wall Street behemoths” that created the need for the agency should be targets, not the CFPB, according to Bloomberg. The agency will have oversight of consumer financial products from personal loans to credit cards, when it starts operations later this year.

Consumers may end up not using credit at all

The aim of financial reform laws is to prohibit trickery by financial institutions and make the use of credit safer for consumers. That is a noble aim, but it seems to be having a chilling effect on financial institutions. Debit card rewards and free checking are falling by the wayside, but banks cannot impose fees with impunity. Loan credit is likely to get tighter, though that also means banks and lenders cannot gouge customers out of the blue. However, the debate is going to be whether the loss of convenience is worth it.

Sources

CNN

USA Today

Bloomberg

If you use one of these, you're paying an "invisible tax," says Richard Eskow. (Photo Credit: CC BY/MoneyBlogNewz)

JPMorgan Chase CEO Jamie Dimon claims that consumers should start paying for the privilege of using their debit cards, but the truth is that consumers have been paying a premium to use debit for years, argues public policy consultant Richard Eskow in a March 24 Huffington Post column. Eskow states that U.S. consumers pay $48 billion each year to use their debit cards, thanks to the increased prices retailers are forced to charge consumers to offset interchange fees charged by card-issuing banks. It’s a kind of “invisible tax” that big banks collect with no real costs or risk involved.

Debit card fees are getting carried away

The “invisible tax” Eskow speaks of amounts to a kind of sales tax of 1 percent to 2 percent on everything consumers buy with a debit card. This is a tax that hits consumers through higher prices at the register, as retailers must charge more to compensate for the interchange fees debit card-issuing banks charge retailers for accepting debit card payments. On average, retailers pay card-issuing banks 75 cents for every $100 consumers purchases. This amounts to a lot of money in the long run — and most consumers have no idea that it’s happening.

“You never got to vote on it, never heard a debate about it and may not have even known it existed before it came up in the debate over bank reform,” writes Eskow.

Interchange fees go straight to the same “too big to fail” banks that taxpayers have already fed with bailout dollars. As Eskow puts it, the debit card business is “an oligopoly-driven, secretive, usurious system that shafts American consumers along with the small businesses that are the engines of jobs and growth.” And big banks – which had 383 million Visa and 125 million MasterCard debit cards in consumer hands in 2010 – wouldn’t have it any other way.

More covert than credit card fees

Retailers use a number of tactics to encourage consumers to use credit cards rather than debit cards. Some charge an additional fee to use debit or automated card swipe systems may default to credit. Regardless, if consumers have the money to cover a purchase, they will typically use their debit cards, as it does not result in revolving debt with interest. The heightened risk of credit card default makes debit cards more of a popular item with banks than credit cards, too. The public doesn’t deal with interchange fees up front, so the concept is rarely discussed.

Dodd-Frank and the $5 ATM fee

The Dodd-Frank Wall Street Reform Act bears a provision by Democratic Sen. Dick Durbin of Illinois that limits the interchange fees banks can charge retailers. As banks have projected this will cause them to lose $14 billion in revenue (less than the $20 billion the industry gives out in annual executive bonuses), major players like JPMorgan Chase are contemplating $5 non-customer ATM use fees. Don’t be surprised if the money-making idea catches on like financial wildfire across the banking industry.

Sources

Huffington Post
New York Times
U.S. Public Interest Research Groups

GOP questions interchange fees

Next in the backlash from banks in the battle over interchange fees is the loss of debit card rewards, which JP Mortgan Chase is already dropping. Image from Wikimedia Commons.

The next customer perk to go on the chopping block at the nation’s largest banks is debit card rewards. JP Morgan Chase stopped offering debit card rewards to customers in February, and will stop giving rewards to debit card swiping customers entirely in July. The program was closed due to the ongoing battle over the pending cap on interchange fees.

Banks contend they will be brought low with interchange fee cap

The possible cap on interchange fees, or the fees banks charge merchants to transmit payment from debit purchases, has caused the nation’s largest banks to start curtailing customer rewards and incentives, such as free checking. The next casualty of the interchange fee battle is likely to be debit card rewards, according to Bloomberg. Leading the charge in cutting back on rewards for customers is JP Morgan Chase, which stopped offering enrollment into the debit card rewards program to new customers in February. Chase will stop offering rewards altogether on July 19, though any reward points that have been accrued by that point will still be honored. Consumers may eventually need same day loans to use their own money.

Fees at ATM locations going up as well

Another response to financial reform laws has been to raise fees for using automatic teller machines out of a bank’s network, according to MSNBC. JP Morgan Chase, the second largest bank in America, is currently testing $4 and $5 fees for customers who use Chase machines that aren’t Chase customers. The program is testing $4 fees in Texas and $5 fees in Illinois. All other states will retain the $3 fee for non-Chase customers, which is above the $2.33 national average. Chase customers will still pay only $2 per transaction at non-Chase ATMs, which is also above the $1.41 national average. Chase has the second largest ATM network in the nation. TD Bank and Citi bank are following suit, and Wells Fargo and Bank of America are likely to not be far behind. The idea of Chase, Bank of America and Wells Fargo having to run for installment loans because legislation prevents them from gouging customers is not likely to cause many people discomfort, but there is a catch.

Credit unions would also suffer

Merchants are charged interchange fees by for-profit banks and non-profit credit unions alike, according to Forbes, and that is why credit union trade groups such as the National Association of Federal Credit Unions, oppose the Durbin Amendment to the Dodd Frank Act. Credit unions and community banks are not as easily equipped to absorb the loss of revenue from interchange fees, which will be lowered to 12 cents per transaction from the current average of 44 under the current proposal by the Federal Reserve. Currently, bills are being introduced into the House of Representatives and Senate which would delay the Durbin Amendment from taking effect for two years, in order to study the possible fallout.

Sources

Bloomberg

MSNBC

Forbes

Smartphones may be taking the place of credit and debit cards soon. (Photo Credit: CC BY/Edmund Jenks/Symbology)

Banks and credit card companies have made a great deal of money off consumers who have depended upon them for both impulse and emergency purchases via short term credit. However, there may soon be a way for consumers to escape the wheel of revolving interest debt if AT&T and Verizon Wireless have their way. According to Bloomberg, the swipe-and-pay “PayPass” technology used on some smartphones is ready for a revolutionary – many say evolutionary – step. Smartphone pay for purchases and bill pay may become a reality soon, making credit cards and even debit cards obsolete. Mobile billing via the wireless carriers would simply place charges on the consumer’s monthly wireless bill.

Smartphone pay threatening Visa, MasterCard

A proposed partnership between AT&T, Verizon Wireless and T-Mobile would work through Discover Financial Services and the Barclays banking conglomerate. Consumers would be able to pay with a “contactless wave of a smartphone,” according to the Bloomberg report. Considering the growing popularity of smartphones in the United States, more than 1 billion plastic cards could be in danger of hitting the junk drawer if smartphone pay takes off as experts predict it will. Wireless technology consultant Richard Crone called the proposed payment technology a “game-changer” that will fit naturally into the mobile billing industry, as America’s carriers are “the biggest recurring billers in every market” and they are “experts at processing payments.”

What Visa and MasterCard stand to lose

Visa and MasterCard combined handled $2.45 trillion of U.S. consumer spending on general-purpose cards in 2009. That’s 82 percent of U.S. spending within that market, according to industry newsletter Nilson Report. That kind of dominance contributed to $3.54 billion operating income for Visa and $2.27 for MasterCard last year. ATM interchange fees (aka swipe fees) on debit card purchases also generate a significant amount of money for banks, as much as $40 billion per year. Smartphone pay won’t completely replace credit cards, as mobile billing won’t necessarily offer revolving credit, but debit cards in particular could be severely damaged. Short term credit such as payday loans could show  significant gains against credit cards, particularly through mobile applications.

Younger consumers leading the charge

A study by Boston-based consulting firm Mercatus LLC indicates that 80 percent of consumers between 18 and 34 years of age are ready to begin using smartphone pay and similar mobile financial services. There are retail barriers that must be overcome first, according to the Federal Reserve Bank of Boston, but there would also be incentives. According to Bloomberg, it costs retailers approximately $200 for each credit card reader. If smartphone pay becomes universal, that would save retailers money and only cost smartphone manufacturers another $10 to $15 per handset. Retailers would also likely be able to send rewards and other information directly to consumers via the smartphone pay interface.

Sources:

Bloomberg

Federal Reserve Bank of Boston

Your smartphone can also serve as a retail credit card terminal

For consumers with bad credit, getting quick cash access from debit cards is a priceless advantage. Credit lenders are stricter these days. After having faced the lending crash of the recession, many lenders are closing their doors to even moderate-level scorers. That leaves few options for people with bad credit and many turn to the debit card option for purchases. The debit card is useful because it has the “Visa” or “MasterCard” logo and is accepted by merchants who accept credit cards. Using a debit card also helps consumers manage a budget. By limiting purchases to the total in the funding account, consumers don’t have to worry about going over limit or incurring fees. It’s a great safeguard against more fees that can eat away at savings.

The downside of debit cards

There are some downsides to using debit cards, though. First of all, there are annual fees charged to consumers. An annual fee is normal, but some debit card providers charge more fees than others. There can be start-up fees that eat away at money. For example, the GoNow debit card offers the services of a bank account on a debit card, but charges $14.99 monthly and a $49.99 start-up fee. That means that if a consumer deposits $100 to the card, 65% of it is gone in the first month.

There is another downside to debit cards. Visa, for example, makes billions of dollars each year from pennies it charges to merchants every time a customer pays with their debit card. These fees are called “interchange fees” or “merchant fees.” Andrew Martin, of the New York Times, said, “Critics complain that Visa does not fight fair, and that it used its market power to force merchants to accept higher costs for debit cards. Merchants say they cannot refuse Visa cards because it would result in lower sales.” According to a study done by the US Government Accountability Office, consumers pay higher prices for items because more merchants are building in the interchange fees into retail costs. It’s illegal to directly charge debit card users added fees, but adding interchange fees into the actual cost is not illegal. Consumers looking for fast cash may be surprised when they realize how much of their cards is going to the issuer and not creating more buying power for them.

Despite the pitfalls

Despite the bad news, there are still some better debit card options available. Experts cite that consumers should be looking for cards with no application fee, no monthly fee and low annual fees. Every debit card issuer charges an annual fee, but the fees range widely. Some charge $14.99 while others hike the cost up to $69.99. It’s best to do a search and compare various options. The application and monthly fee both can be factored out of the equation with some searches.

Those with bad credit

Those with bad credit may have no option but to start off with a debit card for credit card purchases. They aren’t bad products, they just have to be managed closely to avoid wasting money. Consumers looking for a quick cash option with their debit cards have to be even more vigilant before picking a card. They may be harder to find, but good debit card products are out there.

Need quick cash? Apply HERE!

Have you had it up to here with your bank's overdraft protection schemes? You aren't alone, according to the Center for Responsible Lending. (Photo: flickr.com)

If you’re able to see past the shady origins and history of the Center for Responsible Lending, you’ll see that occasionally they do good work that benefits society. While they’re certainly no friend of the payday loans industry, I find that their recent report on the overdraft fees and overdraft protection rackets is worth noting for any financially conscious consumer. Personal Money Market wants you to be informed when it comes to your money, so take the CRL’s findings as a word of caution when it comes to the twisted world of overdraft fees and protection.

Major Overdraft Findings That Should Give You Pause

Overdraft fees and overdraft protection costs have skyrocketed in recent years. According to the CRL’s findings, there are three shocking points of which we should all be aware:

1. Overdraft occurs frequently. Over a 12-month period, the CRL found (based upon Federal Reserve data) that more than 50 million Americans overdrew their checking at least one time. Of those, more than half (27 million) had five or more.
2. How much operating income did overdraft feeds produce for banks and credit unions in 2008? Try $24 billion. Broken down, it’s been noted that a credit union could derive as much as 60 percent of their operating income from overdraft fees and overdraft protection.
3. Think overdraft is under control? Think again. From 2006 to 2008, the CRL found that banks and credit unions upped the penalty by 35 percent.

Were You Even Asked to Opt Into This?

For most people, the answer is no. When you sign up for a checking account at your bank or credit union of choice, you’re automatically enrolled in an overdraft program. And buried in the fine print of your contract is the overdraft fee schedule. Generally, transactions consumers don’t have the money to cover are automatically paid by the bank or credit union. What the consumer gets for the trouble is a penalty per transaction in the neighborhood of $34. Furthermore, banks and credit unions tend to charge an additional daily fee for as long as a consumer’s account balance remains overdrawn. Regardless of whether an account is overdrawn by $100 or $.01, fees can mount – and no bank or credit union I’m aware of works on a sliding scale. It’s all about flat fees that the consumer must pay. And CRL research indicates that for every $1 in overdraft protection credit extended to consumers using their debit cards, $2 in fees are assessed.

The Banks’ Defense

It’s all about protecting a consumer’s good name, they might say. By providing this “service” to customers, banks and credit unions claim they’re keeping people from bouncing checks. NSF fees from banks, bad check fees from merchants and (potentially) other late fees could amount to a person’s picture being hung on the wall in mug shot-like splendor.

Bouncing Checks Aren’t the Story, However

Debit card and ATM transactions are the big issue. The CRL finds that if banks and credit unions wanted to, they could simply decline transactions that would put consumers in the red. However, most do not do this. They pay for the transaction but “help” the consumer by severely penalizing them. While consumers should certainly be responsible with their money, digging unnecessarily deep holes for them to try to climb out of after they’ve already made mistakes is a questionable tactic on the public relations front. In the end, it comes across as a money grab.

The Reordering Transactions Shell Game

Did you know that banks and credit unions reserve the right to reorder your banking transactions from highest to lowest, even if the lesser transactions occurred first? This catches millions of consumers who gamble that a large expense won’t clear until after their paycheck is deposited. If you’ve ever done this (I know I have), know that you’re playing a losing game.

Automatically Dragged Over the Coals

This is what John and Jane Consumer typically get when they sign up for a standard checking account. Many aren’t even aware that cheaper options are available. Some banks may offer a cheaper, more formal line of overdraft credit, or even a link to a savings account in the case of overdraft. However, even these can be expensive. Payday loans, when used properly, can cost even less. Did you expect me to say otherwise?

A Terrible Trio for Consumers

Using FDIC data from 39 member banks, the CRL digs into just what the overdraft fee jungle means for consumers. They do this by addressing the three points raised above.

1. Overdraft Occurs Frequently

Of the 6.5 million accounts held in the FDIC sample, around one in four experienced at least one overdraft over the course of a year. One in seven experienced five or more. As mentioned earlier, this translates to about 51 million Americans stuck in the overdraft fee quagmire. Those with five or more instances are sinking beneath the muck. The CRL found that repeat offenders tended to be of lower income, single, non-Caucasian renters. Considering that the FDIC points to the 18 to 25 age group as being most likely to fall into the overdraft trap, it seems that more effective financial education is in order. Learning to control excessive impulse spending, balance the checkbook and consider options like payday loans in emergencies could help anyone.

2. Excessive Overdraft Fee Profits

Banks and credit unions are conveniently not obligated to report what they make on customers’ overdraft fees, but the FDIC did manage to compile from a sample of its member banks. They found that that around 69 percent of their service charge income came from NSF fees. Extrapolating the data, the CRL finds that this amounts to $34.3 billion in fees for 2008 alone for all service fees. Sixty-nine percent of that is $23.7 billion, a staggering sum that should be much lower. As banks, credit unions and even credit card companies are jacking up fees, that figure could be even larger in 2009.

3. Fees are Out of Control

As I was saying, overdraft fees are a source of concern for any consumer who depends upon the traditional banking industry to care for their money. As the collection has increased 35 percent from 2006 to 2008, the CRL wonders if there’s a ceiling. Organizations like the proposed Consumer Financial Protection Agency and the Credit Card Bill of Rights are designed to help make right what has gone so far wrong, but will they have the healthy canine teeth to tear away the sweet meat?

As mentioned, fees for individual overdraft transactions and days a balance is in the red are commonplace. A cup of coffee, a tank of gas and a few miscellaneous convenience store purchases can quickly and silently become hundreds of dollars in overdraft fee debt. The CRL finds that the monthly average for individual debt card usage is 17. More than a quarter of those are for less than $10.17 on average. Imagine the possibilities across the banking industry. Since this use has exceeded credit card use since 2005, it’s also no wonder that the credit card industry has sought myriad ways to charge their customers with fine print clauses.

Fruits, Vegetables and Overdraft Fees

That sounds like part of a balanced diet these days. The CRL frightens us all with the details of how Americans spend “about the same amount” on overdraft as they do on fruits and vegetables. As for grains and other essentials like postal stamps and books, overdraft fees are clearly in the lead, say the CRL. Considering how difficult financial matters are during the recession, is it any wonder that the CRL found that most consumers would prefer that a transaction be denied than to have to paid exorbitant $34-per-transaction overdraft fees?

How Can This Problem Be Fixed?

This is your checking account on overdraft protection. (Photo: http://tolweb.org/)

Beyond preparing consumers to make sound financial choices, the financial abuses inherent in the traditional banking system must be exorcized. The Federal Reserve is considering that very matter, as is Congress. Large-scale change is needed.

Prohibit Overdraft Fees on Debit Card and ATM Transactions

This exception would be a welcome aid. If a fee is absolutely necessary, then a bank should have to provide a more highly visible, real-time warning so that debit and ATM infractions don’t fly under the radar and destroy overtaxed consumers’ budgets. If warning sign appears, consumers would have the choice to back out of the transaction (if the merchant didn’t simply rule out that method of payment). Some banks and credit unions block such transactions completely. The CRL suggests that all should follow the practice.

Overdraft Fees Should Be Proportional

The CRL’s finding that the amount that banks pay out to merchants for consumer overdraft is about half of what they actually charge consumers for the “convenience” is another signal beacon that change is needed. Flat fee overdraft charges are unnecessary when compared with the actual cost of covering the overdraft to banks and credit unions. It is understandable that banks and credit unions have to think of profit margins, but the current overdraft fee system is tantamount to gross customer abuse. The CRL suggests that an overdraft line with a reasonable rate of interest would be easier for consumers to swallow. Then again, rather than dealing with revolving interest, why not use payday loans?

There Should Be a Limit

If a consumer dashes their checking upon the overdraft fee rocks, banks and credit unions should be required to offer an alternative product at lower cost. A consumer shouldn’t be allowed to rack up more than six overdraft fees per year, says the CRL. This is what’s called weaning traditional financial institutions from their habits of excessive profit. Getting by with a reasonable profit margin may mean fewer executive retreats to Cabo San Lucas, but it’s the right thing to do.

No Overdraft Protection Without an Opt-In

This is self-explanatory. No service or accompanying gross fees should be thrown at a consumer without their approval. The CRL found that around 90 percent wanted to be able to choose whether they would have overdraft protection or not, so banks and credit unions should listen. If not, they run the risk of losing even more customers to payday loans when financial calamity strikes. Banks and credit unions certainly have a larger war chest to draw from, but that doesn’t mean they shouldn’t try to be competitive.

Make Banks Toe the TILA. Payday Lenders Do!

The Truth in Lending Act requires that lenders disclose certain information to the public. It seems that information regarding the amount of money banks collect in overdraft fees should be included in the purge, much the same way payday loan companies make their APR known. Since overdraft protection is an act of extending credit to a consumer, banks and credit unions should be forced to clarify just what they’re charging customers. No bank or credit union should be exempt from the law.

There’s Nothing Up My Sleeve

The Consumer Financial Protection Agency is on its way. President Obama made a great deal of show about the related Credit Card Bill of Rights. It’s time for banks and credit unions to be made to tow the line. If you’ve even gone through the hassle of dealing with overdraft, you know that there has to be something better behind the curtain. In the case of payday lenders, there’s nothing “up the sleeve.” In a short term financial emergency, payday loans are up front about fees, which typically are much less expensive than falling back on overdraft protection. The consumer should have the power to choose what fits their financial circumstances best.

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