Excessive Overdraft Fee Charges May Trigger Debit Card Reform

The lousy economy has forced millions of Americans to turn away from lines of credit and credit cards. They have been increasingly using debit cards to pay for consumer goods and services which is seemingly the more fiscally responsible thing to do.

It almost seems laudable that we are now relying on funds that we have deposited in our bank accounts as opposed to borrowing from banks and financial institutions when we charge things on our credit cards.

I don’t know who first coined the phrase but as the saying goes, ‘let no good deed go unpunished’. The punishment I’m talking about is now taking the form of overdraft charges being levied on debit card holders.

Typically an overdraft fee costs right around $35 give or take a few dollars depending upon the issuer. There are no regulations or laws set to dictate what can and cannot be charged. Each and every time a purchase is made and there are insufficient funds to cover it and the consumer is enrolled in the overdraft protection program, they will be charged a fee.

Now an argument can be made, and I fully agree, that people should be responsible for keeping track of their own bank accounts. If they do not have sufficient funds to pay for a purchase then they should not make that purchase.

But honest mistakes can and do happen all the time. Many people are using debit cards to make even the smallest of purchases throughout the day. If they should happen to be shy money in their checking account then each one of those purchases will trigger a penalty fee and they would have no way of knowing until they were notified by their bank of the charges.

Just think about that for a moment. What if you are going about your business and you happen to buy a cup of coffee at Starbucks with your debit card, then maybe some movie tickets, then perhaps later on a hotdog and a Pepsi, etc., etc. At the end of the day you could easily have a dozen or more purchases that all have been charged their own individual overdraft fee.

That is a scenario that repeats itself day in and day out millions of times across the United States. Overdraft fees have become so lucrative in fact that banks and financial institutions that issue debit cards stand to reap an estimated $27 billion in 2009 alone from them. Staggering isn’t it?

Overdraft fees on debit cards now account for more revenue than credit card penalties and fees. Dating back to 2001 some regulators have warned the public of this growing monster. Now with the scent of credit card reform wafting through the air it would seem that some legislators are finally listening.

Proposals on the table include requiring that debit card issuers get permission from consumers to enroll them in overdraft protection programs as opposed to automatically doing it. They would have to voluntarily opt in.

That way if someone attempts to make a purchase using their debit card and they have insufficient funds to cover it the transaction will simply be declined. The possibility of issuers having to give a warning when accounts will be overdrawn is also being discussed.

Of course the banks, credit unions and financial institutions that issue debit cards are fighting this. They make the argument that they’re simply charging a fee for a convenience that in effect protects the consumer. They further argue that it is the consumer’s responsibility to monitor their own finances.

The fact of the matter is that the fees generated through overdraft protection programs are actually responsible for a very large percentage of the issuer’s profits. If they are greatly reduced then it is estimated that 1000 to 2000 banks and credit unions across America will fold within a year or two.

It is going to be very interesting to see how this all plays out. Legislators have said that they would like to have some reform laws on the books by the end of 2009. We here at www.creditcardcandor.com will definitely stay on this story and report news and information as it breaks.

The Consequences of Missed Credit Card Payments

Related Information:

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