$24 Billion In Overdraft Fees Last Year Alone

Have you been charged overdraft fees lately on your checking account? The chances are pretty good that you probably have been based on the fact that more than 50 million people across the United States overdraw their checking accounts at least once per year.

Of those 50 million, 27 million checking account holders have overdrawn their accounts at least five times or more. When an account is overdrawn, otherwise known as an overdraft, it means that they have exceeded the funds that they have available. In other words, they have spent money that they do not have.

It is in fact an incredibly lucrative cash cow for banks and credit unions across the United States. In 2008 alone they made almost $24 billion in overdraft fees. That is a meteoric 35% increase since 2006 according to the Center for Responsible Lending.

As you might imagine the sharp increase in overdraft fees and penalties are triggered by debit card use. People have become incredibly reliant on their debit cards and cash while eschewing credit cards as the economy struggles.

The standard practice of most debit card issuers is to automatically enroll their customers in their respective overdraft protection programs. They could of course, simply deny the transaction when there are insufficient funds to pay for it but then that would not result in a fee for the bank.

As more and more consumers are getting angry with the growing number of fees and penalties imposed Congress has begun to take notice. There are some reforms being proposed that include:

  • Having the customer opt-in to overdraft protection programs as opposed to automatically enrolling them.
  • Requiring the financial institution to deny purchases and ATM withdrawals without charge if there are insufficient funds available. The exception being if a real-time warning is issued giving the account holder a chance to accept or deny the accompanying fee.
  • Requiring overdraft fees to have a reasonable relationship to how much over a customer is. In many cases the overages are just a few dollars but they trigger a penalty fee of $30 or more.
  • Place a limit on the number of fees that any one customer can be charged over the course of a year.
  • If a customer habitually triggers overdrafts they would be forced to enroll in an overdraft protection service that is reasonably priced.

Only time will tell which of these proposals will be drafted into law but you can bet that many of them in one form or another will before long.

Related Information:

  1. Banks Reign in Overdraft Fees on Debit Cards A couple of weeks ago we discussed how banks were drawing the ire of their customers and the attention of legislators for charging excessive overdraft fees to their debit card…
  2. New Federal Rules on Bank Overdraft Fees Coming The Federal Reserve Board announced that beginning in the summer of 2010 consumers will not be liable for overdraft fees on checking accounts, ATM withdrawals and debit card transactions unless…
  3. 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…
  4. Read This Before You Switch from Credit Cards to Debit Cards There is absolutely no question that banks and credit card issuers are rushing to increase interest rates and fees ahead of credit card reform legislation taking full effect. They are…