| Overdraft fees have become one of the top thorns in | | | | an opt-out service, meaning that new checking |
| consumers' sides over the past few years, and their` | | | | account customers were automatically enrolled in |
| anger is growing. Even Congress is taking notice and | | | | these programs and had to expressly state their |
| has enacted some legislation to reign in the proliferation | | | | desire to be withdrawn from the programs. |
| of overdraft fees in the banking marketplace. | | | | But, are these programs actually sneaky attempts by |
| What is an overdraft fee? This is a fee that a bank | | | | banks to bilk consumers of their hard-earned money? |
| charges a consumer for the service of covering | | | | Some members of congress thought so. That's why |
| payments the consumer has promised to pay | | | | Rep. Carolyn Maloney (D-NY) introduced bill H.R. 1456, |
| merchants or others when a check or debit | | | | the Consumer Overdraft Protection Fair Practices Act. |
| transaction is made without there being sufficient funds | | | | In short, this bill requires that overdraft protection |
| in the account. Here's how it works: | | | | programs become opt-in, meaning customers must |
| 1. A checking account owner writes a check or uses a | | | | elect to be enrolled rather than be enrolled |
| debit card for an amount that exceeds the amount | | | | automatically. |
| they have in their checking account at the moment. | | | | Overdraft protection programs are a mixed bag. On |
| For example, they may write a check for $50 when | | | | one hand, they protect you from the occasional |
| they only have $45 in their account, overdrawing it by | | | | overdraft. But, on the other hand, these programs can |
| $5. | | | | get very costly, very quickly. What's the alternative? |
| 2. Because the account owner is enrolled in the bank's | | | | Find banks without overdraft fees and open a |
| overdraft protection program, the bank covers the | | | | checking account with them. Here are 3 tips: |
| overdrawn amount ($5), paying the merchant to which | | | | 1. Locate a bank that is well-established and that has a |
| the check was written the full amount due. | | | | national presence. |
| 3. The bank then charges an overdraft fee of $35 to | | | | 2. Find a bank that promises to never, ever charge |
| the account holder, meaning that now instead of -$5, | | | | you an overdraft fee - no exceptions. Such banks |
| the account holder's balance now shows -$40. | | | | usually charge a low monthly fee for overdraft |
| Banks defend their overdraft fee policies because | | | | protection service. But, at the same time, if you |
| they claim the policies are protecting the consumer | | | | overdraw the account, you will not be charged a fee. |
| from potential penalties or other issues vis-a-vis the | | | | 3. Make sure that the bank you choose is |
| people receiving the various payments (e.g., merchants, | | | | FDIC-insured. This type of insurance is the sign of a |
| utilities, other individuals, etc.) | | | | legitimate bank that you can trust. FDIC insurance |
| On the other hand, critics claim that overdraft | | | | means that if a bank were to ever run into any type |
| protection programs are simply thinly-veiled attempts | | | | of financial troubles, you would be guaranteed your |
| to make more money off of the average consumer. | | | | deposited amount up to a certain limit (e.g., $250,000). |
| And, indeed, overdraft fees are a big business, with | | | | The good news for consumers tired of paying |
| surveys indicating that banks pull in over $20 billion | | | | overdraft fees is that banks without overdraft fees |
| annually in overdraft fees. These fees make up no | | | | are available and ready to grant them a new checking |
| less than three-quarters of their account | | | | account. The sign-up process usually takes 15 minutes |
| service-related income. | | | | and involves confirming the applicant's identity and |
| Overdraft protection programs have traditionally been | | | | other security measures. |