Program Success August 2009 | Page 33

PROGRAM SUCCESS – AUGUST 2009 PAGE 33 Are Overdraft Fees Another Form Of Predatory Lending? By Darlene Robinson, President/The Steeple HOME Team A FDIC report from December 2008 showed that 81% of banks allowed overdrafts to take place at the ATM and point-of-sale purchases using debit cards. Less than 10% of these banks actually informed consumers before the transaction completed that there were insufficient funds. The banks surveyed earned almost $2 Billion in overdraft related fees in 2006. This means that over 70% of the $2.7 Billion in total service charges and fees came from overdrafts. The Center for Responsible Lending reports that banks and credit unions collect around “$17.5 Billion each year” in total overdraft fees. The majority of people may think that the banks will not let them use their debit card, if there is not enough money to make a purchase or ATM cash withdrawal. Isn’t a debit card supposed to be the same as cash? A logical person may think that if there is not enough money in the account, the bank will not let the purchase or ATM withdrawal transaction be completed. So if you think your bank or credit union is doing you a favor by letting you make a purchase at a store, or withdraw cash from an ATM (when you thought you may not have enough cash in your account to cover it)….think again In other words the bank is giving you an involuntary loan advance to cover your purchase, and they want this money paid back with extremely high interest (fees/charges), which could triple the amount you actually owed. A dollar cup of coffee could cost you anywhere from $36 dollars or even hundreds if this involuntary loan triggers the dreaded domino effect of bouncing check after check. Let me share my overdraft nightmare. I made a deposit around 10am on a Monday to make sure that I had more than enough money in my account to cover a check that I had written late Friday evening. Before I left the bank, I looked at the time on my receipt and confirmed what I thought was my actual account balance. I was sure everything would clear. Two days later, when I made another deposit, and looked at my receipt, I saw that I owed the bank $400! How could this happen? After doing some research I found out that banks are more likely to process transactions from largest to smallest dollar amount, because this can trigger the overdraft process on your account. Banks can also legally give you a false report as to how much money you actually have in your account. To make a long story short I was able to fight my case and got most of the fees taken off. How many people don’t go back and fight these actions? These fees will go onto your credit report and make it almost impossible for you to open a standard account at any other financial institution. You will only get offered a “second chance” account, where you will have to pay a monthly fee, usually around $10 per month just to have an account. The Federal Reserve recently proposed a change of overdraft rules which could be approved very soon. (www.federalreserve.gov) for more info on banking changes that may affect you and your family.