Bank of America recently settled a massive class action lawsuit concerning overdraft fees. Photo Credit: MoneyBlogNewz/Flickr/CC-BY

Bank of America has reached a settlement in a huge lawsuit that involves most large retail banks in the United States. B of A has agreed to pay $410 million to settle a class action lawsuit over aggressive overdraft fee practices. Similar suits are being filed against other banks.

Dozens of banks sued for account fees

Overdraft fees and account fees are not popular among consumers, and outrage over fee practices has led to major class action lawsuits against some of the largest financial institutions in the United States and Canada. Nearly 1 million people are part of  a massive class action suit, according to Bloomberg, against Bank of America, and similar suits have been filed against JPMorgan Chase, Citigroup and Wells Fargo. Bank of America has won approval to settle for about $410 million. More than two dozen banks from the U.S., Canada and Europe are being sued for overdraft fees, according to Reuters, and the cases were all consolidated into one massive class action. The case is titled In Re: Checking Account Overdraft Litigation.

Undue burden placed on vulnerable consumers

Bank of America is alleged to have processed transactions from largest to smallest instead of by when the transactions were made, thus making it more probable that accounts would fall into overdraft and the sum recovered by the banks would be greater. Overdrafts can function like short term credit; the bank will fund the transaction but add a fee to the amount owed by the account holder. Fees vary by institution, though fees between $25 and $35 are common. Many consumer advocates consider overdraft protections and fees to be abusive to less fortunate consumers. Banks can no longer enroll customers into an overdraft protection program automatically; customers have to elect to enroll.

B of A going mobile

Bank of America is unveiling a pilot program involving mobile banking, according to the Los Angeles Times. If a transaction is declined for insufficient funds, the customer will receive a text message giving the customer the option to have the bank cover the overdraft. If the customer elects to do so, the customer can deposit the required funds by 8 p.m. that evening to avoid the overdraft charge of $35. The option would only apply to that transaction. Overdraft fees will become the province of the Consumer Financial Protection Bureau, according to the New York Times, when the agency begins operation. The CFPB is involved in an ongoing Congressional tug-of-war over the director position and what powers the bureau should have.

Sources

Bloomberg

Reuters

Los Angeles Times

New York Times

Bank of America charges the unemployed less than most banks for prepaid benefits cards. (Photo Credit CC BY/MoneyBlogNewz)

Prepaid debit cards can work well as a gift, but monthly maintenance fees, withdrawal and ATM fees can take some of the usefulness out of them. According to the National Consumer Law Center, prepaid cards may not be the best way of distributing benefits to more than 13 million unemployed in the U.S., as is the custom in 40 U.S. states. When already meager benefits are diminished by a bevy of fees, the unemployed are left with very little.

States should work harder for consumers

A major finding in the NCLC report is that the overdraft, ATM and transaction fees prepaid card issuers charge could be lower if states negotiated more aggressively on behalf of their unemployed. The states benefit from lower administration costs by not having to issue unemployment benefits in the form of paper checks, so working harder on behalf of the populace would be fair trade. While most states make it clear up front that the unemployed have the option of direct deposit or a prepaid debit card, Arizona, Colorado, Louisiana, Oklahoma and Oregon default to debit card. This is a practice that NCLC managing attorney Lauren Saunders says harms consumers.

“Prepaid card junk fees stack the deck against jobless Americans who need every dollar during a financially stressful time,” she told ConsumerAffairs.com.

Prepaid card fees vary by state

According to Saunders, prepaid fees and practices can vary from state to state, even for cards issued by the same bank. U.S. Bank charges overdraft fees in five states, the highest in Arkansas, where overdrafts cost $20. Most states charge only $1.50. ATM fees are standard in four states, not just for purchases, but merely for checking balance.

Among all state unemployment benefit systems studied by the NCLC report, Arkansas, Idaho, Nebraska, Ohio and Oregon are the worst when it comes to overdraft fees, ranging from $10 to $20 per incident. Not coincidentally, U.S. Bank is the card-issuing bank in all five states. The highest number of individual “junk fees” appear on JP Morgan Chase prepaid cards in Tennessee.

Doing the right thing for the unemployed

Saunders stated that not only does the NCLC report highlight which states need to cut a better deal for unemployment benefits debit cards, it highlights that the need for the Consumer Financial Protection Bureau is greater than it has ever been. Considering that only California and New Jersey aid their unemployed by keeping prepaid card fees to a bare minimum – both states are served by Bank of America – the Bureau has much work ahead.

Sources

Bankrate.com

ConsumerAffairs.com

GreenDot.com

Consumers are putting out even more cash to access their own money. Image: Flickr / MoneyBlogNewz / CC-BY

The price for bank customers to access their own money appears to be going up. The federal Truth in Savings Act requires that banks disclose all fees involved with bank accounts. Two recent reports highlight the high cost of everyday financial transactions, all while the Consumer Financial Protection Bureau waits for a director.

The high cost of accessing your own money

The Pew Health Group, a subdivision of the Pew Charitable Trusts, has released a new report on the average checking account in the U.S. According to this study, the average bank checking account has four often-used fees:

• An opt-in overdraft fee of $35
• Overdraft transfer fee of $10 per occurrence
• Extended overdraft penalty of $25 per week
• A monthly fee of $8.95

Financial research service Moebs estimates that in 2011, banks will make $38 billion from overdraft revenue, 90 percent from “frequent fliers” in the overdraft system.

Lack of transparency in bank accounts

The Credit CARD Act of 2009 was written to help protect consumers from deceptive and non-transparent fee structures. The Truth in Savings Act, passed in 1991, was intended to implement the same kind of reforms in the banking system. The U.S. PRIG advocacy group recently conducted a compliance review of banks and credit unions and found that less than 60 percent of banking institutions surveyed provided the fee and cost disclosures required by the Truth in Savings Act. Full compliance with the TiSA was at about 40 percent.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau is the federal agency charged with overseeing financial products. The CFPB, however, has yet to find a director that Republicans and Democrats agree on. Currently, House Republicans have threatened to block all nominees for head of the CFBP unless the structure and funding for the agency is changed. Many of the consumer watchdog functions of the CFPB cannot be put into effect until the agency has a director.

Avoiding fees at your bank

When you are trying to decide on a bank or credit union, there are a few things to look for to protect yourself. First, check out local and regional banks and credit unions rather than “big name” banks. You should also ask about free checking options and ask for a clear, concise disclosure about overdraft fees, fines and monthly maintenance fees. You should also sign up for alerts, so you can be informed when there are changes to your bank account.

Sources

Moebs
Washington Post
Pew Trusts
US PRIG

Just because there are new rules for how banks raise interest rates on credit cards doesn't mean Bank of America and others won't still do so. Photo: MoneyBlogNewz/Flickr.com/CC-BY

Just because there are new rules for how banks can raise credit card interest rates does not mean banks will not raise them. Bank of America, for instance, has been reported as raising interest rates to 30 percent for missing a single payment. The increased regulation is making some differences, but may not be as effective as hoped.

CARD Act causes default interest rates to increase

The Credit Card Accountability Responsibility and Disclosure Act of 2009 had a noble aim, which was to make the way credit card companies dealt with their customers and the interest rates on the cards issued to them clearer. One practice in particular was that of default rates, according to Daily Finance. When a customer defaults on their credit card, the interest rate assessed on past and future balances is raised, even if payment is late by a day. In 2009, default rates averaged around 25 percent, but are currently averaging closer to 30 percent. Bank of America is already raising default rates to 29.99 percent on the future balances of customers who are late on payments.

Card issuers have been compliant

Default rates can no longer be charged on past balances unless the account is 60 days in default or more, and banks are complying with laws. However, that is small consolation to card carriers who rely on credit cards to help them cover unexpected expenses. Credit cards are a method for people who don’t have or want to use cash to avoid having to miss payments or resort to other types of short term loans in a pinch, but a 30 percent interest rate makes for a slim margin of error. One missed payment and a car holder won’t be able to afford to rely on their card as a source of credit anymore, which is a common reason for people turning to other lending options such as car title and payday loans. The Consumer Financial Protection Bureau is supposed to begin regulating consumer credit products in a few months, according to CNN, but legislative bickering over the agency may gut it before it opens its doors.

Overdraft fees continue

People are still paying overdraft fees and buying overdraft protection despite the programs having been a cause of customer dissatisfaction, according to USA Today. It is estimated that banks and credit unions will collect nearly $38.5 billion in overdraft fee revenue for 2011. Overdraft fees average about $35 per occurrence when a customer is enrolled in overdraft protection, which not every bank customer wants to. Simply having one’s debit card declined costs nothing, and a transfer of funds from savings to checking in case of an overdraft costs far less than using a line of credit related to overdraft protection.

Sources

Daily Finance

CNN

USA Today

Citi will voluntarily end a practice that enables banks to charge customers repeatedly for overdraft protection. Image: CC TheTruthAbout/Flickr

In a rare case of voluntary consumer protection in the financial industry, Citi announced that it will change the way it clears checks in order to minimize overdraft protection charges. Financial reform restricts banks from providing overdraft protection for debit cards unless customers opt in, but the rules don’t apply to checking accounts. On Monday Citi said it will curtail the practice of milking overdraft fees from checking accounts by processing smaller checks first.

How banks milk checking account overdraft fees

Citi will start processing checks written for smaller amounts first as of July 25. Before it announced the change, Citi, like most major banks, processed larger checks first in order to increase the likelihood of multiple overdraft charges on checking accounts. Consumer advocates have long denounced the practice, but the banks commonly spin their deceit as a benefit to customers. According to banks, processing larger checks first ensures that high priority bills such as mortgages are paid on time. In reality, the practice works in reverse. For example, if a bank customer has a $100 checking balance and writes checks for $90, $25 and $15, the bank will clear the $90 check first. This leaves a $10 balance, which enables the bank to charge overdraft fees as high as $39 for both the $25 and $15 checks — an extra $78 in ill-gotten gains. As of July 25, Citi will clear the $25 and $15 checks first and only be able to gouge the customer once, instead of twice.

Few consumers are opting in

New financial reform laws passed in 2010 require banks to get permission from customers before enrolling them in debit overdraft loan programs. But according to Consumer Reports, banks have adopted misleading “opt-in” marketing strategies promoting expensive overdraft loans while failing to mention lower-cost alternatives that are available. Citi and Bank of America decided to eliminate debit overdraft protection altogether. Now they decline uncovered transactions at no cost, allow customers to link their checking account to savings, or offer an overdraft line of credit. A Consumer Reports poll found that only 22 percent of debit card holders have opted into overdraft loan programs. The poll also found that 70 percent of consumers would also like to have a choice about overdraft protection for checking accounts. Thirty eight percent of respondents said they would opt out if allowed to do so.

Expect creative customer gouging to continue

In 2009, banks penalized customers with overdraft protection on debit cards to the tune of about $20 billion. Banks collected another $12 billion from overdraft fees on checking accounts. Bank lobbyists managed to get voluntary overdraft loan programs for checking accounts exempted from financial reform, but the FDIC is considering an opt-in requirement at smaller state chartered banks for overdraft coverage on paper checks and electronic payments. Consumers Union, the non-profit publisher of Consumer Reports, is urging the FDIC to require all banks to get consent before before charging customers for checking account coverage. If the FDIC goes along, consumers can expect banks, including Citi and Bank of America, to create other charges such as increasing monthly checking account fees.  When regulators respond, banks will find other ways to make money for nothing.

Sources

Associated Press

Consumer Reports

New York Times

Consumers fed up with bailouts, bonuses and bogus fees are switching to local banks and credit unions by the millions. Image: CC bk1bennett/Flickr

Wall Street banks watched their customers jump ship by the millions in 2010. Community banks and credit unions have watched their clientele grow as consumers disgusted with bailouts, big bonuses and deceptive fees move their money. A driving force behind the movement is the “Move Your Money” project, a campaign that assists consumers who want to divest from Wall Street and invest in local financial institutions.

Big bank defections a growing trend

Wall Street banks, in a game of cat and mouse with regulators, are devising creative new ways to gouge consumers as traditionally abusive practices are outlawed by financial reform. Big banks bet that their customers are too lazy, busy or negligent to notice they are getting nickeled and dimed into giving up dollars. For example, many banks that can no longer charge usurious overdraft fees have discontinued free checking. Carly Fried at MoneyWatch reports that in a recent presentation to shareholders, a Chase executive boasted of making about $1 billion simply by converting 8 million free checking accounts into a revenue stream generating $10 to $12 in monthly fees. But that windfall could be short-lived. The largest banks lost more than 4 million accounts last year. According to the research firm Moebs Services, 7 million to 9 million more accounts could move to community banks and credit unions in 2011.

The Move Your Money campaign

Consumers who question the new checking account fees are often told by their banks that the government forced it to take such action. What they should know is that 65 percent of banks in the U.S. still offer free checking despite the Dodd-Frank bill. The easiest way to find those financial institutions is at moveyourmoneyproject.org. Move Your Money is a campaign organized by Arianna Huffington. The Move Your Money website search tool locates the closest local community banks and credit unions simply by typing in a zip code. After Huffington appeared on CNN to promote the website in January last year, 80,000 people used it to find a local financial institution. In the past year moveyourmoneyproject.org has been getting up to 45,000 page views a day.

Closing a bank account

For consumers thinking about moving their money, closing a bank account should be done carefully. Open an account at your new financial institution first, then make sure all your checks have cleared. Physically go to your bank to close your accounts, but call before you leave to learn about its policies about closing accounts. Some banks will try to ding you one last time with a hefty fee. Be sure to go before 3 p.m. on a weekday so the staff has plenty of time to complete your request. Bring two forms of identification, including a photo I.D. Don’t leave without the balance of your accounts. If the bank can transfer the funds electronically, have it do so. If not, take the money with a cashier’s check or cash.

Sources

Huffington Post

Christian Science Monitor

CBS MoneyWatch

ehow.com

Consumers are getting fed up with having to give the bank a cash advance to use their own money. Image from Wikimedia Commons.

Americans are getting fed up with having to give a cash advance to banks to use their own money. In order to get a quick payday out of customers, major banks are stepping up account fees, ATM and overdraft fees. Account holders are not amused.

Anger over giving a cash advance to banks grows

Most American consumers don’t think it’s fair that a person should have to give a money to a bank to use their own payday cash, according to ABC. The Office of the Comptroller estimates that there will be 80,000 or more complaints by consumers about their financial institution by the end of the year. That would make it the highest level of dissatisfaction with banks since consumer dissatisfaction with banks began being monitored 15 years ago. New regulations were passed last year that helped, but it hasn’t stopped banks from trying to find new ways to extract instant cash from their customers.

Frustration over overdrafts

The bulk of consumers’ ire is about overdraft fees. A practice among some large banks is to clear large transactions first. This way, if multiple overdrafts occur due to a few small purchases, those fees stack up.  Say a person pays their power bill, buys a pack of gum, a coffee and a sandwich over the course of one day with their debit card, but only has enough money to cover the power bill. The bank will clear the largest purchase first. That way, the smaller purchases made when the account was in overdraft can all result in the most fees possible. This practice makes a lot of quick payday cash for banks.

Interest rate can be astounding

Overdraft fees can be viewed as sort of a loan until payday, as the customer is technically borrowing money and paying a fee for it. That said, a $35 fee on a $1 overdraft, is 3,500 percent in simple interest. That works out to 1,277,500 percent APR.

Sources

ABC

Watch out for new ATM and overdraft fees, as you may be better off getting a payday loan. Image from Wikimedia Commons.

Overdraft and account fees are the way banks get a lot of instant cash from their customers. Granted, a fee of some sort is not unreasonable in some situations. However, bank fees generate quite the pay day for the typical banking institution.

Fees rise as laws force banks to find more instant cash

Legislation passed earlier this year forces banks to adhere to new rules concerning overdraft fees and other account fees. For instance, customers now must be asked whether they want overdraft protection. Customers also have to be asked if they would prefer to get a cash advance from the bank to cover overdrafts or just opt out of a transaction. However, because practices that omitted that information are no longer legal, banks and credit unions now have to find more ways of generating income from customers. For instance, according to CNN, ATM fees have risen by 5 percent this year. Overdraft fees rose 3 percent on average, and the average overdraft fee is now $30.47 per occurrence. That’s actually about the same cost as a small payday loan.

Interest in excess of what is excessive

The interest rates on overdraft fees are insane. For instance, let’s assume a person spends $200 more than he has on his debit card, which a lot of people will do this holiday season. Assume also that the person has done this with three purchases, at $30 per occurrence, for a total of $290 that he will have to repay the bank when he gets his next infusion of payday cash. That’s 45 percent in simple interest, but in APR, that’s 2,340 percent interest.

Banks make a lot of money from fees

Overdraft fees are the greatest method of generating revenue from bank customers. Considering that the average person pays $620 per year in fees or more, the average person may be better off getting a payday loan a few times per year to head them off. You can read more in the Payday Loan Facts and Statistics Report on Personal Money Market.

Wells Fargo charges people $35 per overdraft, and at that rate, its cheaper to get a payday loan. Image from Wikimedia Commons.

It might seem inconceivable that Americans could save money by borrowing a payday loan sometimes. Industry critics usually have good intentions. However, something often goes unmentioned while the cash advance industry is raked over the coals. If an average person gets a payday loan to keep from going into overdraft, that person saves money.

An overdraft works like a payday loan

An overdraft charge works sort of similarly to payday loan, in a way. A certain amount of money is loaned, by a bank, and then a fee is assessed for lending the funds to cover a transactions. Basically, an overdraft is the same thing as a short term loan from a bank. The difference is, no one really wants to overdraft, and a lot of people do it accidentally. Thus, when a people overdraw their accounts, they aren’t usually choosing or deciding on the amount they want to borrow. And it adds up fast because if customers make multiple overdraft charges, the overdraft fee is charged each time. Overdraft fees from Bank of America and Wells Fargo are $35 per occurrence. It has been estimated that up to 60.4 percent of income for credit unions is from overdraft fee revenues, and more than 43 percent of non-interest income and 21 percent of net operating income for banks. That’s an awful lot of instant cash.

Overdrafts add up

A study published by Bretton Woods Inc. in 2010 reported that the average household with an active checking account incurred 12.7 overdraft fees or non-sufficient fund fees in 2009, which marked an increase from the 11.8 NSF/OD fees in 2008. The average NSF/OD fee, from the same study, was $29.58 in 2009, meaning that at 2009 rates, the average household with an active checking account pays $375.67 or more in OD/NSF fees annually. The average payday loan is $350, and the average fee is $47.50. Because multiple overdrafts can occur easily, and fees are charged per occurrence, it is cheaper to get a payday advance than an overdraft.

Banks are institutions

Why do banks get off the hook for these fees? Well, it’s simple. Banks are institutions, and some people think that institutions should never be held accountable because they are institutions. You can read more in the Payday Lending Facts and Statistics report on Personal Money Market.

Many people think overdraft fee policies at most banks make them snakes in the grass. Image from Wikimedia Commons.

A lawsuit in California concerning Wells Fargo and its practices regarding overdraft fees concluded recently. The presiding judge, William Alsup, handed a ruling which ordered Wells Fargo to pay back a substantial sum to Californians that it had unfairly dinged for overdrafts. The judge found the bank had deliberately manipulated overdraft practices to profit heavily, and did not mince words in his decision to penalize the bank for its actions. Overdraft fees are controversial, and some contend that people are better off getting a cash advance than using overdraft protection.

Judge orders $230 million in restitution

According to Forbes, Federal judge William Alsup ordered Wells Fargo to pay $230 million to customers it has charged overdraft fees. Depending on the amount of the overdraft, a single overdraft fee can carry an APR far higher than a payday loan. The judge also highlighted that Wells Fargo had a practice of clearing the largest charges first, which guaranteed that customers would lapse into overdraft and be charged $35, even if customers overdrew their accounts by a few dollars.

You can bank on high fees

Wells Fargo also didn’t extend the option for customers to decline a transaction that would put them into overdraft. The decision highlighted documents from the bank that demonstrate the bank establishing covert lines of credit for checking accounts, guaranteeing transactions wouldn’t be declined and the account holder would be charged. The judge also cited that internal communications from Wells Fargo proved the motive was explicitly to profit from overdraft fees. The bank generated $1.4 billion from 2005 to 2007 in California alone. The interest rate on overdraft fees can be higher than if a person were to get a personal loan to float them.

Overdraft practices overhauled

There are new rules in place concerning overdraft practices, and other credit from banks such as credit cards. The Federal Reserve instituted a rule that mandates banks give customers the option of enrolling in overdraft protection, according to CNN Money. Overdraft fees generate more than $38 billion in income for banks annually.

Further Reading

Forbes

CNN Money

Think banks will still love their customers after more stringent overdraft laws are in place? Don't be surprised when more banks simply fire their customers. (Photo: ThinkStock)

Bank overdraft fees have been a thorny issue for consumers who have argued long and hard that a single $.01 in the red transaction should not trigger a $35 penalty plus additional daily penalties. Congress has listened to consumers, and recent financial reforms voted into place will affect just how much banks are able to collect from customers who overdraw their accounts. According to Consumer Reports, losing such a major source of income may prompt banks to “fire” customers.

Banks without their overdraft fees will not go quietly

Instances of overdraft fees are at a 10-year high according to BBC News, and the numbers are similar in the United States. The Federal Reserve recently clarified the changes to come, reports the Kansas City Star, and one look at what’s to come could make a banker sweat like they do when they lose business to no credit check payday loans companies. If they can’t rake in obscene profits from overdraft fees, then banks need to stop the bleeding caused by careless customers. As new customers will by law no longer be automatically enrolled in overdraft protection schemes after July 1 (after August 15 for existing customers), bank income will decrease dramatically.

How dramatically?

The convenience of free checking is made possible by overdraft fees, claims the Boston consulting firm Celent. Their report “Reg, Reg, Go Away: Sorry Banks, They’re Here to Stay” indicates that up to 50 percent of all revenue generated for banks by retail checking accounts comes from overdraft fees. Consumer Reports points out that the new rules governing overdraft fees don’t eliminate fees charged to cover checks or recurring bill payments, but they will crack down on debit card purchases that induce overdraft. Considering that 41 percent of overdraft fees come from debit card transactions, that’s a big chunk of change that banks will lose.

Which leads to the friendly ‘banks fire customers’ policy

Celent advises banks to simply shut down accounts of customers who are simply too expensive to keep. Where that line will be drawn remains to be seen, but all banking customers should take heed and make sure that they have enough money in the bank when they go to make a purchase or payment. Of course, no credit check payday loans and military payday loans will always be an option for those emergency situations were fast cash is necessary. They are much better alternatives than being fired by your bank for overdrafting your account.

Sources:

Consumer Reports

BBC News

Kansas City Star

Related Video:

Banks are considering the use of payday advances to supplement the cost of lost overdraft fees totaling $15 billion, due to new rules that regulate how many over draft fees they are allowed to give a person each day. “Effect July 1, the rules will prohibit banks from charging overdraft fees at automated teller machines or on debit cards unless a customer has agreed to pay for exceeding account balances,” states Rowe and Plungis. This new development is to say the least scandalous because just a little while ago, these same banks were trying to alienate the payday loan industry for tactics far less damaging. Do you think this is a coincidence? I think not!

Banks want to resell overdraft protection in disguise.

“The smarter banks are trying to resell overdraft protection to consumers as a different product,” said Elizabeth Rowe, group director of banking advisory services at Mercator Advisory Group in Maynard, Massachusetts and of the banks already providing this service, but the catch is that they charge an annual rate of 120 percent. Installment loans and other short term loans online come with interest rates that are a little higher.

Checking advance products

These loans are known as “Checking advance products”, states Jeff Plungis. “Banks including Cincinnati-based Fifth Third Bancorp, San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank, and U.S. Bancorp, based in Minneapolis, are already making such loans, usually from $100 to $500, at annual rates of 120 percent if repaid in 30 days. They’re known as ‘checking advance products.’” According to Jeff Plungis and his source Rowe, who advises banks, this will “put them in competition with so-called payday loan stores, which make loans with similar terms to customers who generally don’t have credit cards.”

Payday loans are considered a negative brand

Banks refused to be associated with the term “payday loans,” so instead they opted to call their similar service a checking advance product. The payday loan term has received a bad rap from ironically the same industry who now wants to take over, but before you go jumping to get one of these loans, you must remember some claim that these bank checking advances could be, in fact, more damaging than a regular payday loan.

Banks high interest short term loans

Banks show no mercy when collecting on a short term loan, so using a bank for this service is actually worse for many people. According to Lauren Saunders, managing attorney with the National Consumer Law Center in Washington, who is quoted by Jeff Plungis, states that “A bank has direct access to consumer accounts, meaning its loans will be paid off first, ahead of food, housing or utilities. Sounds pretty scary to me, especially in these hard economic times.

Need payday loans? Apply HERE!

Why would Banks care if people get payday loans?

To put it simply, banks are furious at the short term loan industry for taking away their leverage with their customers. You see banks make millions off customer overdraft fees. Banks can make up to 200 dollars for every 50 dollar debit or check that doesn’t clear. Sounds like banks are really looking out for only themselves and they could care less about even there most loyal long standing customers. I once knew an elderly couple that banked with the same institution for 30 years just to find out that their identity had been stolen. The thieves racked up thousands with online internet purchases. When they reported this with their bank, the bank treated them like they were just scam artists, even after 30 years of loyal business. Eventually the couple did get the charges erased and their money back. Soon after the couple closed their account and vowed to never step foot in a bank again.

Consumers are learning to exercise their rights for short term loans

Today’s consumer has grown to be wise and not as gullible as we once were. We don’t have to tolerate bad treatment from big corporations. Corporations know that competition is fierce, and they could drop down in the popularity race by the spread of just a few unsatisfied customers. People have started a rebellion against greedy financial institutions. We are borrowing the money that we need instead of going over our budgets. We are getting short term installment loans to avoid paying another overdraft fee again. Short term loans are a wiser solution when it comes to paying bills on time. The next time you find yourself in a bind, take out a short term installment loan. It can save you from hundreds of dollars of overdraft fees that the bank will force upon you.

Start Your Short Term Loans Application Here!

Don't be shocked if a small miscue becomes a big money drain called overdraft fees.

(Editor’s Note: Personal Money Market does not offer legal advice. Consult a legal professional if you have questions. The opinions and experiences expressed in this article are those of the author and do not reflect the stance or judgment of Personal Money Market, its affiliates or subsidiaries.)

An overdraft takes place when withdrawals from a bank account exceed the available balance. Some accounts may have a prearranged limit that allows the account to become overdrawn, but the majority of people don’t have this and are charged extortionate overdraft fees.

Why the Overdraft Fees?

It has happened to all of us at one point or another, and there are a multitude of possible reasons why… such as:

• A delay in ATM communication resulting in unavailable funds being used
• The bank charges an unexpected fee
• A personal check has bounced
• Perhaps you may have just misjudged your available balance

When this happens, your credit score takes a dive and you usually get charged another unnecessary fee. All the banks differ with the allowances available and the measures they take when someone accidentally becomes overdrawn. Overdraft fees are there to serve as a reminder that you have exceeded your limit and act as administration charges for the extra work involved in the process. Banks have made a mistake here in their terms and conditions as far as I’m concerned (and I believe most would agree). The fees far outweigh any possible administration costs.

Two Years and £1,500/$2,500

Previously, I had an account with a High Street bank in the UK that offered the usual services and worked well for me. Over the years, however, there were small fees charged for overdraft and other unknown reasons. After researching this problem on the Web, I discovered an excellent forum that explained how to take your bank to small claims court for the fines charged and paid by the account holder. They offered all the templates.

Out of curiosity and the possibility of revenge, I took action. I asked the bank to send all the previous statements and made a tally of the fines and charges applied to my account since the start. The charges added up over time; I was surprised to see the amount accumulate to around £1,500 ($2,500 U.S.) I filed the forms and sent them off, threatening to take the bank to court on the grounds that they had fined me too heavily over the years. We traded letters for a couple of months before the bank made an offer of £800/$1,350, which I happily accepted since I didn’t feel like attending court. After the check was issued, they closed my account, which is not surprising.

A Nasty Travelling Surprise

While I was travelling around Australia, I made every effort to keep on top of my balance at home. It can be tricky. If you end up coming close to the mark due to the delay of international withdrawal charges as I did, the result is that I was around £2/$3.50 overdrawn. The bank failed to contact me directly, even though they were aware I was abroad. They began to charge daily fees of £5/$8.50.

This is a new practice for most banks, as they think it is fairer than charging a fee once a month. That is a load of nonsense! A few weeks later when I finally had access to the internet and could check my account I found that I was not a little but instead £95/$158 overdrawn! Quite frankly that is a joke; under normal circumstances I wouldn’t put up with it however at the moment they are not accepting claims as they are currently in court over a similar issue and I can´t afford to risk the account being closed. After issuing the check, they ceremoniously closed the account. This didn’t surprise me in the least. Be prepared for such treatment if you plan to rectify any daylight robbery that you may be experiencing.

Get Overdraft Protection

Overdraft fees are an ongoing problem, but can be avoided if you take care. Ask your bank if they offer overdraft protection, a service offered to protect you in the event that for whatever reason your account drops from the green into the black. In the event that you know you won’t have money to cover and the bank won’t help, payday loans can also help.

Another option is common sense: Keep on top of it! Make sure you understand exactly how much money you have in your account before making purchases or if you are going to be charged for any reason. In the event that you know you will become overdrawn before it happens, call the bank and ask them if there is an economically friendly solution – if only a temporary one. It seems wrong to say, but remember that the easiest way to stop yourself being charged overdraft fees is by not going over in the first place.

Apply for Payday Loans HERE!

In what universe does a one percent check cashing fee exceed a $35 overdraft fee for overdrawing a checking account by $.01? (Photo: flickr.com)

In the 1960s and 1970s, many of America’s largest banks decided to go “where the money is” by pulling their branches out of the inner cities and focusing more on affluent areas. It may be sheer coincidence that infamous bank robber John Dillinger once gave that response to the question of why he robbed banks, but I’ll leave that for you to decide. Only in recent years has that trend begun to reverse.

What this exodus created was a growing population of “unbanked” individuals and families, people who depended upon everything from shoe boxes and coffee cans to store their money to check cashers for paycheck services and payday lenders for emergency cash. The traditional view society took of such people who depended upon check cashing and payday lending was that they were the “unsophisticated poor.” However, re-examination of this idea is advisable, as the truth may be that the unbanked are more knowledge about what the banking establishment is foisting upon consumers that we’re willing to admit.

Avoiding the World of High Fees

A recent New York Times article explores the phenomenon of why so many people are resorting to alternative measures rather than depending upon traditional checking accounts. While the journalist fails to produce any conclusive reasons, it doesn’t take much to read between the lines – the cracks in society’s pavement, if you will: overdraft fees of $35 per infraction for a checking account mistake are exorbitantly more expensive than a check casher’s fee of a few percentage points to cash a paycheck.

Jose Abreau Says “No”

A 37-year-old native of the Dominican Republic, Abreau denies the bank representatives who come to his New York coffee shop to recruit him into the world of traditional banking. He doesn’t see the point, as what money he earns beyond his immediate needs is sent to his family back home. He does this in spite of the fact that banks are credit unions are within easy reach. However, so are check cashing businesses.

A recent Pew poll indicates that 86 percent of licensed check cashers in Manhattan are located closer than four blocks from a bank or credit union. People like Jose Abreau actually walk past the banks and credit unions to get to the check cashing businesses and payday loan stores. Perhaps this is because many immigrants come from countries where friends or relatives lost money due to bank collapses or corruption (where there was no FDIC to step in and insure the deposits), but in reality there are a wide variety of reasons. Language barriers can exist, but community outreach groups are available to assist. Financial education is available for those who may not understand how traditional banking works. However, the way many banks treat consumers stands at the top of the list as to why someone would not want to rely upon the banking monolith.

Not So Unsophisticated, Are They?

Millions of Americans live from paycheck to paycheck. That’s a fact that the current recession has made painfully clear. Yet this does not mean that these consumers who are just making it are unsophisticated. On the contrary, they’re educated enough to see that if a surprise expense or miscalculation dips their checking balance into the red, the resulting overdraft fees are unconscionable. Rather than having such an organization hold their money hostage, many people feel more comfortable with check cashing, where all the money they have is right there in their hands. Check cashing fees are much lower than any overdraft fee or minimum balance penalty.

How Much Lower?

Consider this. Many banks extend customers the “courtesy” to use ATM machines to withdraw more than they actually have in their accounts. This comes with a heavy – and damningly silent – penalty. We’re talking 200 percent on overdraft fees or more. How is this no legal fraud? How can this be advertised as a courtesy? Is it any wonder that check cashing customers don’t want anything to do with such institutional treachery? If banks would charge no overdraft fees and simply not allow purchases that would create overdraft to go through, they’d probably draw more of a customer base. But banks depend upon overdraft fees for much of their operating profit, so it’s clear that they have little incentive to stop.

Imagine this scenario if you don’t already understand just how disillusioned some are with banks. If a working poor family bounces a single check – let’s say it’s for a mere $3 – there’s an overdraft fee of $35 or more. That could be a weekend’s worth of food for hungry children, plus diapers and subway fare. If the family doesn’t keep their balance above a certain figure, they could be paying even more. Yes, if overdraft fee policies were different, I’d be telling a different tale. And some banks and credit unions do offer free checking. But not everyone meets the credit or documentation requirements, or their local bank many not offer the service. For the transportationally challenged, that means taking what’s closest to home.

What Carrot Could Banks Possibly Offer?

Banks are crying out for customers in this recession, aren’t they? What kinds of incentives could they offer to make people want to use their services? Aside from being able to receive direct deposit or develop a credit history, it seems that people would like to earn a decent amount on their money. But savings accounts that offer .0125 percent interest don’t cut the mustard, let alone the artificial buttery spread. It’s better than nothing, but not by much. Factor in the fees and penalties and traditional banking can feel as good as a sock in the eye.

Hiding from “The Man”

Those who avoid traditional bank accounts for the services of check cashers may be hiding, too. I mention this not to justify the practice, but it’s something of which we should be aware. Without a checking account, bill collections and courts have one less option for skimming cash in the event that the consumer owes money. Of course wage garnishment is still a possibility. And what about those people who avoid traditional banking because their income is under the table? Being able to cash in on certain welfare benefits is a powerful lure, which could explain why some consumers don’t feel the compulsion to put their money in the bank where it can be detected so easily.

Not Such a Rosy Picture for Most

One reader commented on the New York Times article in a manner both poetic and bitingly real:

O, these great unwashed masses, unwilling to strap themselves to our glorious consumer banking system where they can know the joys of ATM fees, NSF fees, account maintenance fees, account research fees, etc. , all while enriching themselves on the 1.8 percent interest rate! What is wrong with these people? Don’t they want to be part of the American Dream?

Avoiding traditional banking is second nature for many, but steering clear of it entirely can have its disadvantages. Check cashing is an attractive option for those who can ill-afford the predatory practice of overdraft fees. Unfortunately, that would include most people. Many who have money do not understand just how much the deck is stacked against those with so little. Bank presidents think in terms of profits; bank customers hope not to run afoul of bank policy, as they have become increasingly unprofitable for consumers with each passing year.

This should be considered a deadly weapon, in light of banks' runaway abuse of overdraft fee policies. (Photo: flickr.com)

Overdraft fees across the board have attracted the interest of Congress lately. Many have said that the way in which overdraft fees are assessed by banks and credit unions is predatory and dishonest. Charging the same high fee for each infraction – even if is for 1 cent – and then charging an additional fee for each day a customer’s account is overdrawn makes it nearly impossible for  already cash-strapped consumers to raise their heads above water.

In a recent case before California’s Supreme Court (Paul Miller et al. v Bank of American, NT & SA No. S149178), the ruling from Kruger v. Wells Fargo Bank (1974) 11 Cal.3d 352, 356 [113 Cal.Rptr. 449, 521 P.2d 441] (Kruger) was put to the test for Paul Miller, a retiree who depends upon Supplemental Social Security for his income (since 1992). Funds are directly deposited into his Bank of America checking account (since 1994). At the time that the direct deposits began, Miller was promised by Bank of America employees that those deposits would “be safe from debits or charges” unless he authorized otherwise.

But Overdraft Fees Came Calling

First, Bank of America accidentally deposited $1,799.83 in Miller’s account. They realized the error and reversed the credit, but not until Miller had made some charges. B of A also failed to give Miller notice of the deduction. The result was that his balance dipped below zero. Overdraft fees followed, which depleted a social security payment. For reference, Bank of America’s NSF fees at that time ranged from $14 to $32 per transaction. Up to five NSF fees could be processed against a checking account per day, with a maximum of $160 in overdraft fees allowed.

Miller pointed out that depleting his social security payment made it impossible for him to pay his rent or living expenses. Yet Bank of America told their long-time customer that he’d have to repay the part of the erroneous credit that he’d spent, but that he “could open a separate checking account for his SSI deposits that would not be used for repayment.” Miller did this, but a few months later the bank twice dipped into this new account to cover the overdraft fees. Both times Miller complained and the money was credited back to him.

And the Same Thing Happened Again

Although he did so infrequently, Miller occasionally overdrew his checking account. Each time, Bank of America hit him with overdraft fees that automatically deducted from his social security income. Bank employees who’d previously assured Miller that no deductions could be made from social security deposits without authorization now claimed that such funds received no “special treatment.”

Interestingly, during trial, a Bank of America executive responsible for checking products at Miller’s branch testified that Bank of America “could develop the capability to identify accounts into which public benefit funds are directly deposited, and could bypass charging NSF fees to those accounts.”

Why Didn’t Bank of America Take the Customer-Friendly Route with Overdraft Fees?

The same executive testified that “in order to prohibit certain account holders from overdrawing their accounts (which would eliminate the Bank’s need to recoup overdrafts or charge NSF fees), the Bank would have to ‘bounce’ more checks, withhold check deposits for the maximum allowable period of four days instead of one or two days before the Bank would make the funds available for withdrawal, eliminate point-of-sale purchases (but not personal identification number (PIN) transactions), and restrict automated teller machine (ATM) withdrawals from non-Bank ATMs.” The executive also stated that larger transactions would be processed before small – regardless of when the transactions occurred – because Bank of America felt larger transactions were “more important.”

More Important for Whom?

Any consumer who has felt the barbed sting of overdraft fees knows that the reordering of transactions is a way that banks stack the deck against consumers. Bank of America claimed in the Miller case that “the Bank’s practice of processing larger transactions before smaller ones results in the same total amount being overdrawn from a particular account.” Yes, but as Mr. Miller’s team clarified, doing so “increases the number and amount of NSF fees imposed.”

Miller would have none of that. His complaints alleged such things as “fraud, negligent misrepresentation, and intentional infliction of emotional distress, as well as violations of Code of Civil Procedure section 704.080; the Consumers Legal Remedies Act (CLRA), Civil Code section 1750 et seq.; the unfair competition law (UCL), Business and Professions Code section 17200 et seq., and the false advertising act, Business and Professions Code section 17500 et seq.” That’s a lengthy list of charges. How would Bank of America fare?

Nearly $300 Million at Stake in Overdraft Fees Alone

The California trial court found that fraud, negligent misrepresentation, CLRA, UCL, and false advertising claims were all viable issues that could be tried. A class was even certified that included “[a]ll California residents who have, have had or will have, at any time after August 13, 1994, a checking or savings deposit account with Bank of America into which payments of Social Security benefits or other public benefits are or have been directly deposited by the government or its agent.”

By the numbers, Bank of America had 1,079,414 such accounts in 2003. They received more than $800 million in government benefits via direct deposit. From January 1994 to May 2003, Bank of America took “at least $284,211,273 in NSF and other overdraft fees from accounts containing Social Security direct deposits.”

What Did the Jury Find in the Miller Case?

The jury found that Bank of America violated the CLRA by “falsely represent[ing] that it ha[d] the right to use Social Security funds from direct deposit accounts that receive government benefits including Social Security funds to pay overdrafts, insufficient fund[s] fees, . . . and money claims it has against class members.” Thus, the jury awarded $75,077,836 in compensatory damages for the class action. Each member also received $1,000 in statutory damages. Finally, Miller received $275,000 for emotional distress.

However, the Court of Appeal later reversed the trial court’s judgment, holding that Kruger did not apply. This is apparently still under review at this time.

What is the Kruger Argument?

Essentially, Kruger stated that a bank “may not exercise its right of setoff against deposits which, derived from unemployment and disability benefits, are protected from the claims of creditors.” But the Appeals Court found that the 1974 Kruger ruling “only applied to cases in which government payments were redirected to pay debts outside the bank.” Overdraft fees, by that logic, are internal debts.

The Office of the Comptroller of the Currency (OCC) sided with Bank of America’s ability to honor overdraft fees in the event of insufficient funds. They claimed that banks can do this without infringing upon 12 United States Code section 24, par. Seventh, or 12 Code of Federal Regulations part 7.4002 or 7.4007 (2009). (Letter, at p. 1). Overdraft fees are considered account maintenance, rather than creating a debt that the bank later collects.

The Consumer Loses Again

Runaway overdraft fees continue to plague consumers who can ill afford them. This is not to say that consumers should not be responsible for their expenditures, but in the case of Miller, I would argue extenuating circumstances. Until this is settled in California court – and until Congress forces banks to curtail abusive overdraft fee practices – the old phrase “buyer beware” still applies. At least there’s no deception with payday loans…

Money for nothing

In these difficult economic times, the average American family is forced to live paycheck to paycheck — if they are lucky enough to have jobs at all. When the U.S. government bailed out Wall Street, the major banks got huge cash infusions. Since then, major banks like Chase and Bank of America have been reporting record-breaking profits.

Is this because they are making profitable loans to consumers and businesses, earning money the way banks traditionally do? No. In fact, banks’ lending levels are the lowest they have been in more than a decade. What is the secret to their record profits? Fee revenue, or as we all call it: Overdraft Fees.

NSF fees are costing Americans billions

According to the Washington Post, consumers paid a stunning $23.7 Billion dollars in overdraft fees in 2008, and that number is expected to rise dramatically in 2009. An estimated 51 million Americans have been forced to pay at least one overdraft fee in the past year at an average of $35 each.

Ouch. These fees are making cash-strapped families hurt even more. What is worse, banks used to have more forgiving policies regarding overdrafts, but now some only allow one overdraft fee per year to be removed.

Congress is regulating overdraft fees

Congress is considering overhauling the laws that govern overdraft fees, but it could be years before those laws go into effect. Yet, many Americans have discovered a secret method for preventing overdraft fees and saving money, while being able to cover their daily expenses until their next paycheck. What is the secret? Online payday loans.

Borrow money through your computer

Most Americans loathe the idea of getting a payday loan from a cash advance store in a strip mall. People are embarrassed to admit they are having financial difficulties, and frankly being seen at a payday loan store could be a huge social stigma.

Thankfully, the internet has revolutionized the way people can borrow money when they need it. You can receive up to $1,500 in two hours or less, and have the money deposited directly into your checking account. You don’t need good credit to qualify for these loans, and you don’t even need a fax machine!

The true cost of overdraft fees

Look at the math. Say you were getting paid on Friday, but your bank account came up just $3 short on Thursday. One single overdraft fee would cost you $35, creating an effective annual interest rate of 260,245 percent! As most people know, having just one overdraft fee is rare when your account balance is low. If you just buy gas, go to the grocery store, pay for child care, and pay your electric bill the day before payday, you could owe $140 in overdraft fees and in reality be paying more than 1 million percent interest!

Payday Loans help you save

Online payday loans just make financial sense. If it cost you $15 to borrow $100, and it saved you $140 in overdraft fees, its like putting $125 in your pocket. The key to saving money on payday loans is to make sure to pay them back quickly, as the fees can get expensive over time. If you don’t have the money to pay the loan back within then next two weeks, consider an installment loan, which offers a more affordable payment plan.

Your secret to beating the banks

Your banker will tell you that payday loans are dangerous and expensive. What they don’t want you to know is that they are making a killing on overdraft fees, and wouldn’t want that money to go away. Do your own homework, and you’ll find out that banks are profiting billions while America suffers. Take matters into your own hands and get an instant cash advance today.

If you need an instant cash advance, 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.

Related Video:

With this debit transaction cost $35 more than you think?

The Associated Press reports that some senior congressional Democrats want to draw up legislation that would limit how much banks can charge customers in overdraft fees. Personally, I have been slapped with $105 in overdraft charges before for transactions that equaled a lot less than that, so I certainly would feel better knowing that banks are no longer allowed to charge $35 per purchase

Of course, I could have saved a lot of money if I had gotten a payday cash loan. The average fee for a $100 payday loan is $15, so if I would have been smart and taken the initiative, I’d be $90 richer.

Picking on payday loans

Of course, banks do not want this legislation to become a reality. And, of course, as banks always do when when people point out their unethical practices, they are trying to shift focus onto a different institution. The common strategy is that when people say “banks are bad” the banks say “payday lenders are worse!” Even though this is totally untrue. The Associated Press reports:

Michael Menzies, president of Maryland’s Easton Bank and Trust Company, said eliminating overdraft protection for many customers will mean denying charges and embarrassing customers or forcing them to rely on high-cost payday lenders.

Clearly, Menzies has no idea what he is talking about. The numbers I have already presented you with prove that overdrawing your bank account is more expensive than getting a payday loan, even if you’re only charged once. How can a guy whose bank charges $35 when someone goes $1 over their balance point fingers at payday lenders, who charge $15 for a $100 loan?

Overdraft fee legislation

The idea behind the overdraft fee legislation is to require banks to ask customers whether they want overdraft protection or not. Banks insist that their customers would rather be charged an overdraft fee than have their debit card denied, but I am pretty sure that is universally untrue.

How many people do you think have kicked themselves because they bought some cheap thing they didn’t really need and ended up paying an additional $35 for it? Another idea for the overdraft legislation is that banks would only be able to charge customers overdraft fees once a month and no more than six times per year. I think that regulation would really help out customers and it definitely makes sense. I think it is atrocious that banks can charge such high fees over and over, each time you make a purchase after your account is overdrawn. I think it makes a lot more sense to charge the fee only once.

Proportional charges

The senators also say the legislation should require that banks base the overdraft charge on the amount by which the account is overdrawn. As it is now, most banks charge $35, whether the customers overdraws the account by $2 or $200.

Essentially, an overdraft charge is the bank’s way of lending  you money for your purchase — with or without your consent — and charging you for that loan. A $35 fee for a $2 loan is a little ridiculous, but $35 for $200 is understandable.

We are going to share a real life story of a family who avoided additional hardship after being taken advantage of by a bank, thanks to short  term loans online. Of course we have to change the names of the people who benefited from the online short term loans for privacy reasons. Please read the following story of the Joneses and their experience with big banks and installment loans for people with bad credit.

Economic hardships can be prevented with short term loans

The “Jones Family” got more than one short term loan online in order to squeak by in this harsh economy. Mr. Jones was having trouble making sure that he kept track of all the debit card transactions between himself and his wife. Add automatic deductions to the account and internet purchases and Mr. Jones had a receipt for disaster.

Big bank fees cause big shock to the budget

Mr. Jones had no idea that the big bad bank was going to reorder debits and other deductions to the account in a very strange fashion. After planning a trip for his family for several months, everything seemed to be in place. The Jones family had a great time and had not a clue what was about to happen to them financially. Their budget was going to undergo a radical change without their knowledge or permission.

Fun vacation ruined by bank fees

After a great week of vacation, Mr. Jones finally was able to get online and check the family bank account. Shockingly the bank was claiming they were over drafted by almost $1,000 dollars. Mr. Jones had set up automatic overdraft protection with a secured savings account credit card. There should not have been 10 overdraft fees charged to the account. It was going to take more than one short term loan online to get the Jones out of this budget crisis.

Read the bank’s fine print

Upon close examination of the banking record, it was revealed that there should have been enough cash in the secured credit card account to cover the overdrafts. There was approximately 15 debit charges to the account for various vacation expenses. There was the addition of an early debit for auto insurance to the account for approximately $200. This brings us to the scandalous part of the story.

Bank reordered debits to create unnecessary overdrafts

The bank reordered all the small debits for the vacation that were in “pending” status and put the larger insurance debit first ahead of the others. This was strange since the insurance debit actually accrued after all the small debits in the account. Interestingly enough, the bank reordered the debits to create 10 overdrafts instead of just one. So, to borrow about $100 or so, the bank charged Mr. Jones $350. To say the least, the Jones were outraged.

Overdraft protection ignored by bank

It is bad enough when the bank did not take the money out of the overdraft protection account to cover the insurance payment, but to reorder all the debits for the vacation in order to profit to the tune of $350, that is simply highway robbery. The Jones were not only shocked but extremely upset. Being that the bank would not have any mercy on the Jones, they were forced to obtain short term loans online to make ends-meat while they paid off this outrageous debt.

Banks routinely target families

This is a common tragedy in the United States today. Big banks and financial institutions are taking advantage of working families. They pay the media big bucks to villainize short term loans online but they charge people in excess of 30,000% APR and call it a fee. Short term loans online are definitely a far cheaper alternative than overdraft fees.

Learn from the Jones Family mistakes

If you are like the Joneses you may want to keep better track of your online debit transactions and possibly get a short term loan online before you go on your vacation and pay for everything with cash or at least make sure you have extra money in your bank account. That would have saved the Joneses several hundred dollars and prevented massive headache and anxiety.

Get Your Short Term Loan Online Now!

If you don’t need a short term loan online today you may need one in the future. Please save this page in your bookmarks to come back later. If you need a down payment assistance loan to purchase a vehicle, you should check out VehicleMicroFinancing.com.