Banks still trying to collect overdraft fees © Goodshoot/Corbis

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Banks not giving up on overdraft fees

The rules on imposing overdraft fees have tightened, and the deadline for customers to opt in has passed, but don't expect banks to let go of this revenue source.

[Related content: banks, interest rates, online banking, ATM, debit cards]

By TheStreet

Did you opt for overdraft protection with your bank? If not, the service has been discontinued.

Do you need overdraft protection?

Aug. 15 was the deadline under the Federal Reserve's "Regulation E" to inform Bank of America, JPMorgan Chase or whichever bank you use to allow ATM and debit transactions that exceed the account balance to be covered for a fee. Most overdrafts from paper checks and automatic payments still are covered for a fee, but ATM and debit transactions will be automatically denied unless you've opted in.

This was the second phase of the clampdown on overdraft fees. On July 1, banks were prohibited from adding overdraft protection as an automatic feature on new accounts. (The third phase, limiting the number and size of penalty fees, went into effect Aug. 22.)

Leading up to the deadline, nearly anyone with a bank account likely received mailings, e-mails, phone calls, ATM screen prompts and an in-branch hard sell to keep them in these programs, a lucrative source of revenue for banks of all sizes. Don't expect the cajoling to stop anytime soon, as banks keep up a full-court press post-deadline to reclaim those who opted out, either by choice or inaction.

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Aggressive marketing

A concern expressed by the nonprofit Center for Responsible Lending (CRL) is that banks and credit unions are "scrambling to pressure consumers to opt in to overdraft coverage."

A report the group issued recently finds fault with how some numerous consultants and marketing firms have been promoting their services. It references a consultant whose pitch suggests offering a gift or cash offer to customers with four or more overdrafts annually if they opt in. Others have advocated ways for "snatching bank revenues from the jaws of Regulation E," suggesting that "if they are in the top 29% of abusers, call them."

The CRL says those with frequently overdrawn accounts are among the most financially vulnerable. They tend to be lower-income, single and nonwhite, and rent their homes. "Charging large fees for typically small debit card transactions erodes these consumers' finances further," the group's report reads, adding that the average overdraft purchase is only $17.

"They just don't lay all the facts out straight," says Rebecca Borne, senior policy counsel for the CRL. "Some of the solicitations we have seen suggest that a customer will be charged a fee if their debit card transaction is denied. In reality, we know of no institution that does this, and the Federal Reserve has been clear that to do so would raise fairness concerns. Another example is when overdraft protection is advertised as a 'fee service.' It is free, of course, if you never use it. But if you do use it, it is the highest cost credit they offer."

The CRL is pushing for more-detailed marketing materials that fully outline the range of overdraft protection options available, many of which may be more cost-effective than an opt-in to fee-based coverage. These include an overdraft line of credit, transfers from a credit card and transfers from a linked savings account.

Who wins, who loses?

Statistics on how many people have opted for overdraft protection are not yet available. Banks, working their way through second-quarter earnings, and government agencies alike have said their tallies probably won't be ready until September. But already there are indications that, despite the public's anger about overdraft fees being excessive, many are still going forward with their plans.

A July survey conducted by the National Foundation for Credit Counseling found that 26% of 2,089 respondents intend to opt for overdraft protection.

"It is disturbing that this many people live so close to the financial edge," says Gail Cunningham, a spokeswoman for the foundation. "Anticipating that they will overdraw their account, they are willing to exacerbate the problem by paying a fee to have their purchases approved."

Mike Moebs, the CEO of Moebs Services, an Illinois company that collects and analyzes bank data, sees a much higher response rate in the offing.

A survey of 2,200 banks and credit unions his company crunched out found that "frequent users of overdrafts appear to be close to 100%," he says. These frequent users represent roughly 10% of most portfolios and nearly 90% of the total overdraft fees collected each year. Overall, he thinks general-consent statistics could reach up to 80%.

Continued: $37.1 billion in overdraft fees last year

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74Comments

Newest

12/09/2010 12:10 PM

The best way to avoid fees is to not write checks on an account that does not have the balance to clear the check or on an account with which you plan to cover a written check with a deposit to be made in the future.

NO, NO, NO! The funds need to be in the account BEFORE the check is written or debit made. Transactions clear too fast now to rely on covering checks and debits after they are made.

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Tony1941

10/26/2010 10:27 PM

Banks make a fortune off of return check fees. It costs the bank's well under $10 to return an average check, yet they can charge $35 for this service. They employ tricks to trap you if you write checks on money you do not have on deposit. The best way to avoid fees is to not write checks on an account that does not have the balance to clear the check or on an account with which you plan to cover a written check with a deposit to be made in the future.

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Mr Jacobson

10/07/2010 2:12 PM

Out of all the banks I have dealt with in the past WELLS FARGO is the worst. These guys are unbelievable. They are hell bent over juicing their own customers who have banked with them for years. These guys have absolutely no common sense when dealing with their own customers. The TOP mgmt hire Bank Managers with no formal education (in my opinion) for cheap wages, and train them well to advise their customers of the bank policy which is so pathetic. But what these monkies do not realize is that their own customers are so fed up with WF, are seeking other institutions to bank with. Don't blame the Chinese or Indian banks, they are making full use of the situation here in the US. Growth of HSBC in the USA is a perfect example. They love their customers and understand the needs of their customers to grab new business. Give it 5 more years, WF will loose 50% of their customer base at the rate they go.

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MI banker

9/13/2010 3:06 PM

Gizmo5000--It is the bank's fault. Look back in time just 40 or 50 years. Back then if you wrote and check and didn't have the money in the account to cover it the bank didn't cover it for you. Now instead they will cover most anything and just charge an overdraft fee. I might actually see it as ok if when you use a debit card and the account has a negative balance it would atleast get initially denied.

When banks return checks, they do not charge an overdraft fee, they charge an insufficient funds fee. So there is a fee either way. As for debit card transactions being declined, if there is not a sufficient balance, you have that choice now. If you do not want these transactions approved and subject to overdraft fees, do not opt-in for this coverage.

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MI banker

8/31/2010 10:09 AM

Gizmo5000--I'm assuming the debit was ACH (preauthorized automatic debit using your checking account number (not debit card) If you placed a written stop payment on the ACH item, the bank should have honored it. If they missed it, they should make it right with you. If the order was verbal, it is your word against theirs. Even if this is the case, you have 60 days after mailing of your statement to fill out a Written Statement Under Penalty of Perjury stating that the ACH debit was either unauthorized or the authorization was revoked.

If this is the case, the bank should have refunded the fees and returned your debit.

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Gizmo5000

8/30/2010 4:49 PM

What's wrong with that picture is that you overspent your account by $5.00. Keep a register people! By the way, I work for a small bank, I'm not a high-ranking executive, and I am compensated very well. Stereotyping your bank is no better than stereotyping your neighbor. You will not be charged a dime for an insufficient funds charge on your account if you opt-in, unless of course you overdraw your account. Pretty simple concept, and not too hard to see that no one is taking advantage of anyone if you control your own finances instead of expecting the bank to do it, then screaming at them for doing it more correctly than you choose to yourself!

As I had said in my first post in this thread TD bank my former bank who felt compelled to charge me $175 in over draft fees for 4 purcahses tolaling less than $18 and for $30 that was debited from my account by a business who I had told both the bank and the business that they were no longer authorized to debit my account and the bank was to stop any debits should they occur. That had been arranged TWO months prior. So when I returned to the bank to discuss the matter the manager refused to even discuss it with me and refused to reverse any of the over draft fees. I pointed out how had they the bank done their job properly my account had the money to cover the 4 legitimate transactiions with money to spare. I proceeded to close my checking account immediately. And was treated so poorly I have reported the incident top the BBB.

Perhaps you could explain to me how my register being balanced (which by the way , it was.) would have helped? I as a single person unemployed could not afford the $175 hit on my finances. Yet it was me NOT the bank who lost out because two months prior someone at that branch failed to do their job!!!!! So don't tell me that the customer has to take responsibility. I did !!!!

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MI banker

8/30/2010 1:51 PM

kwc58--excellent explanation of things. I would be interested in the rest of your comments which do not show. (must have exceeded a limit)

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MI banker

8/30/2010 1:50 PM

Banks use many tricks to get you to overdraw your account. One trick is the _____ of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town.

Velvet1941--(there is a word missing where I have place the blank. I'm assuming you mean exchange or clearing.) Some banks will clear checks with neighboring banks without sending them through the national clearing channels. This is done for 2 reasons--the first is cost--less entities handling the items, less fees. The second is quicker clearing of checks. This was historically done to present checks quicker in case they are returned NSF. Now with electronic clearing of checks, this reason is going away.

Again, none of these things matter if the money is in the account BEFORE the checks are written or other debits are made.

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MI banker

8/30/2010 9:31 AM

Here the theory is that you wrote the check yesterday and are trying to cover it today.

Velvet1941--You don't cover checks today that you wrote yesterday. The days of 3-5 day float are gone with electronic clearing--and this still should not matter because funds are supposed to be in your account BEFORE you spend them, not AFTER.

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MI banker

8/30/2010 9:27 AM

One trick is the of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town. Another trick is to post inclearings (checks taken by other banks yesterday and given to your bank at this mornings clearing house)

Like the "tricks" customers use to write checks when they don't have funds in their account? None of these 'tricks' by the banks work if you simply don't write checks you don't have funds available in your account.

TD2K--you are so right. It comes down to this--The money is supposed to be in your account BEFORE you write a check or make any other kind of debit. Then it doesn't matter where the check is presented or where you use your debit card, etc. That said, not all banks return debits for the current day without taking into account credits for the current day. We post all transactions at the end of the day, credits first, which gives the benefit of the credits whether made first thing in the morning or the last transaction of the day.

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TD2K

8/29/2010 9:47 PM

One trick is the of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town. Another trick is to post inclearings (checks taken by other banks yesterday and given to your bank at this mornings clearing house)

Like the "tricks" customers use to write checks when they don't have funds in their account? Sarcastic None of these 'tricks' by the banks work if you simply don't write checks you don't have funds available in your account.

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On the workers backs.......

8/29/2010 2:50 PM

I am with shadobe people need to act on these issues I quit the using debit only for emergencies. The credit deal is S***. The common consensus is that we have to have credit to survive in this world. I am lease option on my home even though I have GI benefits. I am about to buy a low cost older used truck and pay it out right. There are ways that you can make it in this life without supporting politians, banks and government and allowing them to take and take. IT CANNOT BE DONE IF PEOPLE STOP DOING WHAT IS FEEDING THEIR FIRES. We need to support each other and make our voices heard as a united people. If we could only get past the ignorant masses and show those who are in the tax brackets that get all the breaks. The sad truth is in this country people generally turn a blind eye to the goings on in the country until it effects them enought that they are hurting as well.

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kwc58

8/29/2010 7:12 AM

First let me say that I grew up in a family who worked together and worked our fingers to the bone on a family farm. We didn't have a lot but we never knew we were poor. I managed to get a college education because I wanted to do something else with my life. I paid for my education myself and I've worked my way to the top on my own. I'm now CEO of a small community bank but no one gave me the job, I earned my way there.

Shadobe's comments are pretty interesting to me although I question the references to God in the same paragraph with a word like "FKidding"...do you really think that is the language God would like to have seen used there?

That aside, there is some "merit" to your argument. I say "some" because while you think all the banks and credit reporting agencies and politicians are working together to take advantage of poor little you...you are seriously misguided. But you are correct in your summation that people need to stop paying these fees, not because the bank shouldn't be charging them but because most people can't afford to pay them. If you can't afford them, then don't spend the money, learn to live within your means...I believe that is another Biblical principal regarding stewardship.

The banks have a right to charge the fees. Gizmo5000's comment regarding the $175 he got charged because a transaction was allowed to clear that had instructions to not clear sounds like you need to climb a little higher up the ladder because IF what you are saying is true then the bank owes you the $175 plus at least an apology for their mistake. My guess is that you were using some big bank like B of A or something similar and whoever you were talking to is just an entry level clerk who lacks the brain cells to make a good decision. Go over their head and get a reasonable response.

As for the fees we "big bad bankers" charge, it's the same thing as a loan and, if the "loan" is made, there is no collateral to protect the bank so trust me, we write off a lot of those fees and close the accounts because they are not collectable. Those who do pay them and get their account back to a positive number are usually glad to have paid them because it is better than having their electric turned off where...by the way...if happens, the big bad electric company will charge you a much higher fee to turn back on!!!

These consumer protection groups are so quick to try to make the banks the bad guys...why don't they form their own credit union and all us bad bankers will send the people who can't afford to pay fees over there and they can see how long they survive making what amounts to an unsecured loan to a bunch of people who can't afford to pay them back.

America needs to get it's head back in its proper anatomical position and quit trying to protect everyone from their own stupidity. We will return to the greatness that built this country when we stop giving things away and people start living within their means. If you think you are paying too much in overdraft fees, cash your check and pay cash for your bills and close your checking account. Is it more trouble, sure but if you can't handle the bookkeeping then you should have to pay for the us to provide the service.

I drug myself up from a very moderate lifestyle to a job that is at the top of my industry. I didn't complain about what my education cost and I didn't ask someone else to pay for it. You can bet that those folks who didn't opt in at my bank will be gone inside of 90 days because I WILL NOT provide them a service where I put my bank's assets at risk without being compensated. If they won't opt in, the first time they overdraw their account with a debit card, the account will be closed due to overdraft activity and they can go bank somewhere else...oh, guess what, I'd be willing to bet that no one else will take them because no one else wants to put their assets at risk either.

The media and the regulators need to get it through their stupid heads that any other way is just bad business and if "us bankers" do what they r

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ohsunnydays

8/27/2010 10:41 PM

Keep in mind that it is not illegal to sequence transactions. BTW, although you may use your card in a certain way, they don't come in the same due to the merchants processing. One item may come in a day or so before others that you may have done on the same day. That is a merchant (store) issue. When its transacted and processed is not up to the bank to decide. Although, yes, if they come in at the same time, they do post them from highest to lowest--again not illegal. The extreme majority of banks do that with debit and checks.

That is the reason most get in trouble using both checks & debit card and not tracking them. You have $200 in the account and a $150 check out there. You use your card on Monday for $55 and the funds are there. But on Tuesday the check comes in, and the $55 posts on Wednesday. BAM $30!

I agree that paying high to low to cause more OD fees is wrong. Your second paragraph shows again why it is important to keep an accurate register of what is in your account. As others have said here, account holders need to take responsibility for their own actions. The bank cannot help the fact that not all merchants are timely about submitting their debit card transactions (and this would not matter if customers kept track of their money and did not generate debits when they don't have the money in their accounts). BTW--a debit card transaction that has not been posted to an account is no different that a paper check that is outstanding. In either case, the money should be in the account before the transaction is generated. Then neither the amount of time taken to post to the account nor the posting order would matter.

I take issue that the majority of banks post high dollar to low.

...SO why are we using our debit card knowing there is a $150 check out there with only $200 in the account...if you spend $55 by my math they would be negative $5, KNOWING you ONLY HAD $200...simple math, regardless of what order the check or debit transactions clears. Put a $5 item back...

OH and keep a register!

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ohsunnydays

8/27/2010 10:38 PM

Keep in mind that it is not illegal to sequence transactions. BTW, although you may use your card in a certain way, they don't come in the same due to the merchants processing. One item may come in a day or so before others that you may have done on the same day. That is a merchant (store) issue. When its transacted and processed is not up to the bank to decide. Although, yes, if they come in at the same time, they do post them from highest to lowest--again not illegal. The extreme majority of banks do that with debit and checks.

That is the reason most get in trouble using both checks & debit card and not tracking them. You have $200 in the account and a $150 check out there. You use your card on Monday for $55 and the funds are there. But on Tuesday the check comes in, and the $55 posts on Wednesday. BAM $30!

I take issue that the majority of banks post high dollar to low.

OH and keep a register!

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ohsunnydays

8/27/2010 10:34 PM

Keep in mind that it is not illegal to sequence transactions. BTW, although you may use your card in a certain way, they don't come in the same due to the merchants processing. One item may come in a day or so before others that you may have done on the same day. That is a merchant (store) issue. When its transacted and processed is not up to the bank to decide. Although, yes, if they come in at the same time, they do post them from highest to lowest--again not illegal. The extreme majority of banks do that with debit and checks.

That is the reason most get in trouble using both checks & debit card and not tracking them. You have $200 in the account and a $150 check out there. You use your card on Monday for $55 and the funds are there. But on Tuesday the check comes in, and the $55 posts on Wednesday. BAM $30!

I take issue that the majority of banks post high dollar to low.

OH and keep a register!

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Velvet1941

8/27/2010 7:52 PM

Banks use many tricks to get you to overdraw your account. One trick is the of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town. Another trick is to post inclearings (checks taken by other banks yesterday and given to your bank at this mornings clearing house) before they post deposits made today. Here the theory is that you wrote the check yesterday and are trying to cover it today. By posting inclearings first in the process they hope to catch people writing checks on funds that are not current. Good luck to all of you, and watch out for those greedy large banks.

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MI banker

8/27/2010 2:56 PM

Keep in mind that it is not illegal to sequence transactions. BTW, although you may use your card in a certain way, they don't come in the same due to the merchants processing. One item may come in a day or so before others that you may have done on the same day. That is a merchant (store) issue. When its transacted and processed is not up to the bank to decide. Although, yes, if they come in at the same time, they do post them from highest to lowest--again not illegal. The extreme majority of banks do that with debit and checks.

That is the reason most get in trouble using both checks & debit card and not tracking them. You have $200 in the account and a $150 check out there. You use your card on Monday for $55 and the funds are there. But on Tuesday the check comes in, and the $55 posts on Wednesday. BAM $30!

I take issue that the majority of banks post high dollar to low.

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MI banker

8/27/2010 2:50 PM

Did you opt for overdraft protection with your bank? If not, the service has been discontinued.

First paragraph in the article--not true. There are 3 types of OD protection. Sweep from another account, line of credit loan attached to a checking account (these 2 require the customer to apply and sign an agreement--nothing changed with these), and bounce protection (AKA, OD privilege). The third is added to accounts by the bank simply as an automated means of deciding which OD debits to bounce and pay (see my previous comment). What may have been discontinued is the coverage of ATM and debit card transactions on consumer checking accounts that were existing before July 1st. As I said before, these account holders were contacted by the banks (as required by the federal regulation) to give them the choice to opt in if they wanted these transactions to continue to be covered. If they did not respond, their accounts received a "Failed to Respond" status for opt-in, thereby removing this coverage. This spares those transactions from having OD fees by having them declined. If the consumers want these transactions to be authorized, then they have to opt-in and understand that there will be OD fees.

Consumers opening checking accounts beginning on July 1st should be given the information and choice whether or not to opt-in when the account is being opened.

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FLIZM

8/27/2010 2:49 PM

I love the fact that Wells was fined for re-sequencing, to me this is the biggest part of over draft fraud. You can't tell me banks don't know...TO THE NANO SECOND when a debit was made. If the money is not there, decline the debit. But what BB&T and Fifth Third Banks do is debit the largest item first AND THEN re-sequence the little debits to maximize their profits. I would really prefer to pay one fee on the large item rather than multiple fees on the smaller ones. I could make a lot of money in my business too if I could lie about the timing of events. How does one go about suing other banks who have practiced re-sequencing?

Keep in mind that it is not illegal to sequence transactions. BTW, although you may use your card in a certain way, they dont come in the same due to the merchants processing. One item may come in a day or so before others that you may have done on the same day. That is a merchant (store) issue. When its transacted and processed is not up to the bank to decide. Although, yes, if they come in at the same time, they do post them from highest to lowest--again not illegal. The extreme majority of banks do that with debit and checks.

That is the reason most get in trouble using both checks & debit card and not tracking them. You have $200 in the account and a $150 check out there. You use your card on Monday for $55 and the funds are there. But on Tuesday the check comes in, and the $55 posts on Wednesday. BAM $30!

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The Basics

Banks not giving up on overdraft fees

Aggressive marketing

Who wins, who loses?

More from MSN Money and TheStreet

Rate this Article

The best way to avoid fees is to not write checks on an account that does not have the balance to clear the check or on an account with which you plan to cover a written check with a deposit to be made in the future.

Banks use many tricks to get you to overdraw your account. One trick is the _____ of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town.

Here the theory is that you wrote the check yesterday and are trying to cover it today.

One trick is the of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town. Another trick is to post inclearings (checks taken by other banks yesterday and given to your bank at this mornings clearing house)

One trick is the of checks between banks, hoping to catch people who write checks at merchants that clear through another bank in town. Another trick is to post inclearings (checks taken by other banks yesterday and given to your bank at this mornings clearing house)

Did you opt for overdraft protection with your bank? If not, the service has been discontinued.