Due to complaints from consumers, legislation is in the works to stop banks from continuing their practice of automatically allowing debit card transactions even if the account does not have the money to cover the transaction. As this legislation is being discussed, some banks are announcing future changes to their overdraft protection policies. For many consumers, these overdraft protection changes are too little too late.
Over the past decade, banks have quietly started to automatically allow debit card transactions even if the money was not in the account to cover the transaction. This has caused the overdraft fee revenue for the banks to more than double over the past decade. It is estimated that for 2009, banks will have revenue from overdraft fees of around $38 billion.
In the past, banks would deny a transaction if the account did not have the money to cover it. Most banks now cover such transactions automatically without any warning to the consumer that they will be charged an overdraft fee. Each time the automatic overdraft protection kicks in; the consumer is charged a $35 overdraft fee.
What makes this even worst is that the banks manipulate the transactions during a day that actually increases the risks of multiple overdrafts to occur. Commonsense is that the banks would handle transactions in the order they occur. The banks do not. They actually process the largest transactions first and work down to the smallest.
This reduces the bank account amount quicker and can result in many little transactions resulting in overdraft fees rather than one larger transaction. The banks claim that this overdraft protection policy is designed to protect their customers since larger transactions are usually rent or mortgage payments. For many customers it only leads to other overdraft fees since the multiple $35 overdraft protection fees deplete the amount in their bank accounts even more.
Legislation is in the works in both the Senate and the House. This proposed legislation is looking to ban the banks from reordering the processing of transactions. The banks will have to process them as they occur.
The proposed legislation will require the banks to obtain their customer consent before enrolling them into an overdraft protection program. It also requires the banks to start notifying the customer when a transaction is about to trigger an overdraft fee. This will allow the customer to have the option to pay for the transaction in some other manner and avoid the overdraft fee.
Some of the banks have recently announced they will be making changes to their overdraft protection policies. The banks claim they are listening to their customers and are not responding to the proposed legislation. While the changes that the banks have announced are a start, for the most part they do not address all of the changes that are needed.
Bank of America has announced that their changes will take place on October 19th. They will start allowing their customers to opt out of their overdraft protection program. Also, they will not charge and overdraft fee if the account is overdrawn by less than $10 a day. Overdraft fees will be limited to four transactions in a single day.
Chase customers will have to wait till the first quarter of 2010 for their changes to the overdraft protection program. Like Bank of America, Chase will allow their customers to opt out of the program. They have reduced their overdraft fees to only three a day. Chase customers can only overdraw their account by $5 if they want to avoid fees.
Wells Fargo and US Bank have joined Bank of America and Chase in announcing changes to their overdraft protection programs. Unfortunately, the changes the banks have announced do not include stopping the manipulation of the transaction process schedule. Plus, the banks are planning on working on an opt-out rather than an opt-in option for their current customers. These two changes could protect their consumers more and reduce the banks revenue from overdraft fees. Something the banks are not interested in.
Written by Denise Clay
Hickory, NC
Exclusive to HULIQ
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