PINcept.com: NY Times on Debit Cards and "Overdraft Protection" Fees

NY Times on Debit Cards and "Overdraft Protection" Fees

Now that debit has surpassed credit in terms of both the number of transactions AND volume, we are starting to see more media reports on the subject of debit. One of focal points are "overdraft protection" fees attached to "signature debit" transactions. These fees earned banks $38 Billion dollars in 2008. Unless you are a Wells Fargo or a Bank of America customer, you can request the stoppage of what they euphemistically call "overdraft protection." (WF and BoA won't let you switch that cash cow off) Anyway...

The New York Times recently ran a couple stories on debit cards Here's an excerpt from one, followed by an excerpt from the other:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee.

All told, he owed $238 in extra charges for just a day’s worth of activity

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear.

But they would not budge.

Editor's Note: Has anyone else noticed that a check's "float" has been all but eliminated when "paying" with a check (thank you check imaging) but when "depositing" a check, the clearing time has increased. Does anyone have an explanation as to why that might be? (other than setting up the consumer for $238 worth of "overdraft protection" fees) Has anyone else noticed that banks reshuffle (see graphic on left) the order of the checks "in order" to reap the highest amount of "overdraft protection" fees? (i.e. $300 in account. 5 debit purchases. 1-4 are $25. 5 = $275. The $275 is paid leaving $25 resulting in 3 overdraft protection charges of $35. ($105) as opposed to paying the 1 for the $275.)

Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.

Continue Reading "Overspending on Debit Cards a Boon for Banks" at NYT

So what can consumers do about it?

"Many consumers don’t realize their bank may automatically let a debit card transaction go through even if there is not enough money in the checking account. A fee then accompanies the purchase, no matter how small, that exceeds your balance. Some banks, like Bank of America and Wells Fargo, generally won’t let you switch off overdraft coverage.

Stop by the branch or call on the phone and ask to turn off the overdraft protection. Many banks will do this if you ask. But make sure you understand what will happen if it says yes. In addition to cutting your debit card off when you’re at the store and low on funds, will it also refuse to allow bounced checks to go through?"