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Report Finds High Debit Card Overdraft Fees

January 29, 2007

Plastic Prison • Credit Tips And Tricks • Get Control of What You Owe • No Easy Way Out Of Credit Card Debt • Penalty Fees, Interest Rate Hikes, and Misleading Contracts Await Credit Card Shoppers • "Convenience Checks" Carry a Heavy Price Tag • New Forms of Credit Scoring • Understanding Credit • Credit Bureaus: Who You're Dealing With • Reading Your Credit Report • Credit Scoring: The Fickleness of FICO • Credit Knowledge: A Long, Hard, Struggle --- News • House to Hold Hearings on Credit Card Interchange Fees • Confronting a 'Culture Of Debt' • Feds Back Tighter Credit, Debit Card Rules • Director Takes Aim at Banks in New Film, 'Overdrawn!' • Floating Due Date Snags Chase, Citibank Customers • Congress Takes On Credit Card Interchange Fees • Consumers Lobby Congress to End Credit Card Abuses • Congress Takes On Credit Card Abuses • Credit Counselors Go Risque With their Message • Credit Card Debt Climbs Worldwide • As Credit Delinquency Rises, So Does Credit Relief Scrutiny • Congress Calls Out Credit Card Companies • College Students Warned Against Credit Card Trap • High-Fee, Low-Credit Charge Cards Prey Upon the Poor • Senate Bill Would Curb Abusive Credit Card Practices • Fed Proposes Tighter Controls On Credit Card Rates • Senate Panel Slams Abusive Credit Card Practices • Congress Targets Credit Card Companies For Reform • Report Finds High Debit Card Overdraft Fees • Bank, ATM Fees Continue To Rise • Credit Card Fees Rise, Disclosure Statements Inadequate • Free Credit Reports Mark First Anniversary • Credit Card Debt Sinking Many Older Consumers • Experian Launches New Credit Score; Critics Unimpressed • Credit Cards Target Students • Credit Card Companies Fear "Perfect Storm" • Credit Bureaus Introduce New Scoring System • More Banks Using Universal Default to Hike Interest Rates

Debit cards have replaced old-fashioned checks for millions of consumers because they're simple and convenient.

They're so easy to use, in fact, that a new report suggests consumers are more likely to overdraw their accounts, resulting in costly fees.

"What banks are calling 'bounce protection' is starting to look more like a 'protection racket,'" said Eric Halperin, director of the Center for Responsible Lending's Washington office and a co-author of the report.

"Banks are raking in fees from unwitting customers who would not overdraft if given a choice."

The report, "Debit Card Danger," analyzed the checking accounts of more than 5,000 customers of the nation's 15 largest banks and found that debit card purchases and ATM withdrawals trigger 46 percent of high-cost overdraft loans. Written checks, on the other hand, are responsible for just over one quarter.

Making an in-store debit card purchase is by far the most expensive way to overdraft, costing $2.17 for every dollar borrowed. By comparison, check-triggered overdraft loans cost $0.86 per dollar borrowed.

The group says these findings refute the contention commonly made by banks and credit unions, many of which also have fee-based overdraft programs, that they are protecting consumers by sparing them the expense of bounced checks.

CRL says banks could prevent debit card overdrafts at checkouts and ATMs by denying the transaction or warning the customer, though doing so would eliminate the opportunity to charge an average $34 fee.

Yet a survey of account holders conducted in conjunction with the analysis of checking account transactions showed that people want the chance to avoid spending into the red. Some 61 percent of the 2,400 surveyed preferred that their debit card purchase be denied at the checkout if it would otherwise overdraw their account and incur a fee. Nearly all responded that they would cancel their ATM withdrawal to avoid a fee.

In the last Congress, Rep. Carolyn Maloney (D-NY) introduced a bill that required banks to report the APR on overdraft loans, get written consent before putting customers in "bounce" protection programs, give overdraft warnings at the ATM and stop manipulating debit and credit processing in order to generate more fees.

Maloney plans to introduce similar legislation this year.

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