In their latest report, the Consumer Federation of America showed that banks are still gouging consumers with overdraft fees. Overdraft fees have their place. If a consumer doesn’t have enough money in their account, then the bank should not authorize payment and charge a service fee. Of course, if a debit card is not honored, then the consumer knows right away that they have a problem and can take the steps to fix it.
How about the consumer that overdrafts and doesn’t know it? Well the top 10 banks certainly aren’t taking the necessary steps to keep you informed. Technically, when you overdraft and the bank covers it, a loan has been made. However, banks do not have to disclose fees or how the system works. They don’t have to go through the process of providing a Truth in Lending disclosure. The bank customer just thinks that the account has overdraft protection. Little do they know that it can be a much bigger nightmare if this were to occur.
Think about it for a second. The bank could allow a number of overdrafts on small items through a few days. If you were to use a debit card for ten items over a two day period and be in the overdraft, you could rake up $340 in fees plus the money that you spent that you did not have in the first place.
For consumers who are running tight in cash, that could produce a huge problem. However, that is not the biggest problem. Banks can process your payments in whatever order they choose. So, they could choose to pay the largest to the smallest, the smallest first, or pay in any order. Seven of the top ten banks reserve the right to pay in any order that they choose.
Depending on how items are paid, it could mean the difference between hundreds of dollars of additional fees.
Six of the top ten banks charge daily overdraft charges after a certain amount of days. Seven of the top ten banks pose no maximum amount of fee charged.
So, why shouldn’t this be a surprise? Banks are hurting and need to raise capital. Who is the best to get that capital from? Over 17.5 billion dollars were raised last year in unauthorized overdraft loans with many of those fees triggered by small debit card purchases.
Is there any reason why banks love for you to use debit cards? Once again, debit cards carry the highest liability in so many areas and do absolutely nothing for your credit.
For a listing of the ten major banks and their practices, click here.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
