Complain about a product or service

Report Finds High Debit Card Overdraft Fees

January 29, 2007

• 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 • Credit Cards Giving Consumers Heartburn • Obama Signs Credit Card Bill • Olive Garden Settles Credit Card Data Exposure Suit • Video — Credit Card Law May Produce Unintended Consequences • Senate Overwhelmingly Approves Credit Card Reform • Obama Presses Case For Credit Card Reform • Obama Wants Credit Card Legislation This Month • Americans Turn Away From Credit Cards • Credit Card Bill Passes House — Again • Credit Card Losses Spike in February • More Students Using Plastic to Pay for College • Federal Court Reinstates Credit Card Suit • Senate Committee Approves Credit Card Accountability Act • Debt Settlement Comes With Hefty Fees • Credit Card Reform Comes Back To Congress • Credit Card Rates on the Rise • Credit Card Pitches Fall Sharply • Experian To Stop Selling Credit Scores To Consumers • Class Action Filed Over Chase Credit Card Fees • Consumer Credit Plunges Record Amount in November • Consumers Resolve To Kick Credit Card Habit • Credit Card Issuers Changing the Rules --- • More about credit cards

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.

Report Your Experience
If you've had a bad experience -- or a good one -- with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.

Back to the top |