Banks Are Charging Higher Overdraft Fees
Every time I login to my Bank of America account online, I see two service offers for the check card, or debit card, I have from BofA. One is Keep the Change, which allows you to keep the change every time you pay your purchase the debit card. The other one is Overdraft Project. Since I don’t use debit card at all, I never enrolled in any of the services. Though there were a couple of times when my checking account balance was really low (at one point in April, I had less than $20 in the account and that was the closest I ever got), I didn’t bother to sign up for overdraft protection because I don’t think the service is necessary. Plus, I always think that banks should just reject any transaction when there’s not enough fund in the account, instead of charging the a fee and letting the customer keep using it. However, given the revenue overdraft fees generated (we are talking about tens of billions), banks are unlikely to eliminate it. Instead, it appears that banks are going in the opposite direction.
In 2010, Congress passed the law that aimed at protecting consumers from abusive banking practices such as automatically enrolling customers into overdraft protection and charging them a fee every time they spend more than what they have in their banking accounts. The law didn’t prohibit overdraft fees all together. What it actually does, as I wrote at that time in an article about overdraft fee, is making overdraft protection not a default and bank customers have to opt-in to be charged for a overdraft fee for withdrawing more than they have in the account. With the new regulation, you would think that banks would behave good when it comes overdraft fees.
Well, if that’s what you think, you may want to think again. According to a SmartMoney article last week, banks today are charging significantly more overdraft fees than they did a couple of years ago. In 2011, the median overdraft fee rose to $29, up 5.4% from 2010 and 11.5% from 2009. And this month, Fifth Third Bank announced that it will increase overdraft fees to as high as $37 (if you overdraft 5 times or more in the past 12 months) , up from $33, starting June 27th. US Bank is planing to do the same and other banks are likely to follow suit.
So why are banks raising overdraft fees? It’s to make up the lost revenue of course after the overdraft law went into effect, now that the default option is opt-out. What is interesting is that, as I noted in the previous article and in the SmartMoney story, it appears that the majority of the overdraft fees were collected from a small portion of the people whoever paid overdraft fees. And it seems that those people really need to overdraft and are willing to pay the fees to enjoy the pleasure of buying stuff even when they don’t have the money. Well, I guess it won’t be too difficult for the banks to figure out the formula to generate more revenue: Charge higher fees for who die-hard overdrafters.
The overdraft fees can go as high as the banks like them to be. It still won’t bother me a bit.
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