| New Federal Reserve rules take effect July 1st to | | | | The Greenlining Institute report also points out that |
| give consumers more protection against bank | | | | many banks have gamed the system to maximize the |
| overdraft fees on debit cards. Up until now, many | | | | fees they can collect by "reordering" purchases in a |
| banks automatically offered overdraft "protection" for | | | | given day to count the most expensive one first. This |
| debit cardholders. That meant that if a debit cardholder | | | | way, they raise the chance that each additional |
| had insufficient funds in his or her account to cover a | | | | purchase can count as an overdraft if the highest |
| purchase or ATM withdrawal, the bank would allow | | | | purchase of the day wipes out your account balance. |
| the transaction to go through, but then could charge an | | | | For example, let's say you have $100 in your account. |
| overdraft fee. A study of 462 banks by the Federal | | | | You use your card to buy lunch for $10, you fill up your |
| Deposit Insurance Corp. showed that overdraft fees | | | | card for $30, you buy clothes for $50, and then you |
| range from $10 to $38, with a median average of $27. | | | | pay a bill for $60. If the bank processed these |
| Overdraft fees on debit cards generated more than | | | | transactions in the order that they were made, only the |
| $20 billion for banks in 2009, according to the New | | | | last charge would be counted as an overdraft. But by |
| York Times. Banks earned another $12 billion | | | | processing the $60 and $50 transactions first, the bank |
| overdrafts caused by check writing, which this law | | | | then counts the $10 and $30 transactions as |
| does not address. | | | | overdrafts and charges you two overdraft fees |
| A study by the Greenlining Institute, a think tank | | | | instead of one. |
| focused on multiethnic public policy, indicates that bank | | | | The Institute concluded that despite changes in the law, |
| overdraft fees hit low-income consumers and people | | | | overdraft fees are still too high and continue to affect |
| of color the hardest. That's because people new to | | | | low income consumers disproportionately. With widely |
| banking and/or with low incomes tend to maintain low | | | | varying policies among banks, and hard to follow fee |
| bank balances. These are the very bank customers | | | | structures, consumer continue to be at risk for being hit |
| who can least afford to bear the burden of extra | | | | with unexpected and costly charges. |
| fees. | | | | Few Prepaid Debit Cards Allow Overdrafts |
| Under the new law, consumers must opt-in for | | | | Because prepaid cards are not tied to a checking |
| overdraft protection on debit cards. Without it, a debit | | | | account, prepaid card issuers are not inclined to allow |
| card transaction would simply be declined at the point | | | | overdrafts or collect overdraft fees. This is because |
| of sale if there were not enough funds in the account | | | | cardholders could potentially make a purchases with |
| to cover a purchase. For transactions that did go | | | | insufficient funds on a card and then fail to load money |
| through and the bank would have to cover the | | | | onto the card to cover the overdraft. Thus, when an |
| overdraft without charging a fee. To protect their | | | | attempted purchase is greater than the amount of |
| lucrative revenue stream, banks are beginning to send | | | | funds available on the card, the transaction will simply |
| out alarming marketing messages urging debit card | | | | be declined. This is largely seen as a benefit by prepaid |
| holders to opt into an overdraft service or risk not | | | | cardholders. Prepaid cards are a positive alternative |
| having to make payments "even in an emergency" | | | | for consumers who have been denied checking and |
| that result in overdrawn accounts. | | | | have trouble obtaining a credit card or other kind of |
| Overdraft Charges: Banks Game the System | | | | debit card. |