Are banks or customers protected on overdrafts?
Published: September 29, 2009
WASHINGTON Who's the greater villain: the guy at a bar who has one drink too many or the bartender who sold him that drink?
If you think there's enough blame to go around, you'll agree there are two wrongs and two rights on the controversy surrounding bank overdraft protection fees.
It's wrong for financial institutions to prey -- and that is what they are doing -- on the carelessness of their customers.
It's also wrong for customers to complain about overdraft fees that they can largely avoid -- by keeping track of what's in their accounts and not overspending.
Financial institutions are right when they argue they are providing a service customers clearly want or otherwise they wouldn't use it.
But government has every right to rein in an industry practice that in many cases has become predatory by design, allowing customers to overdraw their accounts.
No matter who you think is right or wrong on this issue, I must point out a troubling trend that just won't die: The financial industry continues to greatly profit from consumers' love affair with plastic.
Much of the overdraft penalties come from debit-card transactions.
Because debit cards are linked to banking accounts, customers supposedly are forced to spend only what they have in their accounts. The financial institutions actually have convinced some people that a debit card is the same as cash.
It's not.
And it's not because the institutions allow you to spend -- either mistakenly or irresponsibly -- more than you have.
Most banks whose automated overdraft programs cover ATM and debit transactions only inform customers of their insufficient funds once a transaction had been completed, according to a 2008 study by the Federal Deposit Insurance Corp.
Overdraft penalties are assessed when a financial institution covers a check, ATM withdrawal or debit-card transaction. When the customer eventually makes a sufficient deposit, the bank takes the overdraft amount plus a fee.
Even a transaction costing a few dollars can trigger overdraft fees, which can be as high as $35.
You can always opt out of overdraft protection.
Many of those who are paying for overdrafts are doing so at a time when they are least able to afford this service.
Clearly, people should be more responsible. But once again, financial services institutions have crossed the line of fairness. And the federal government has helped.
The federal agencies that regulate the industry determined several years ago that overdraft protection programs were not extensions of credit.
Overdraft protection is most certainly the extension of credit. So let's call it what it is and put in stronger consumer protections.
Financial institutions should get specific consent before signing up a customer for overdraft protection.
Consumers should be given an opportunity at every single point of sale to decline a purchase or cancel an ATM withdrawal if they don't have enough money in their account (even if they've consented to overdraft protection).
These are easy and fair fixes. Some major banks have taken the step to change their overdraft policies. More will need to be legislatively pushed to do the right thing.
Michelle Singletary welcomes comments and column ideas but cannot offer specific personal financial advice. Readers can write to her c/o The Washington Post, 1150 15th St. NW, Washington, DC 20071, or e-mail her at
.
Post a Comment(Requires free registration)
- Please avoid offensive, vulgar, or hateful language.
- Respect others.
- Use the "Flag Comment" link when necessary.
- See the Terms and Conditions for details.
Advertisement