Earlier this month, I wrote about how overdraft fees are becoming more popular with banks finding ways to assess the fees more often, in tandem with raising what the customer owes each time—sometimes several within a day—an account is overdrawn. Laura Rowley’s latest column mentioned that a few congressmen are interested in restricting banks from certain practices.
Representatives Carolyn Maloney (D-N.Y.), Barney Frank (D-Mass.), and Julia Carson (D-Ind.) are sponsoring legislation (HR 946, or the Consumer Overdraft Protection Fair Practices Act) to protect consumers from abusive overdraft policies. The act contains four common-sense provisions to address some of the industry’s sneakier tactics. It would:
- Require written consent from the consumer before enrollment in an overdraft loan program.
- Require financial institutions to warn the customer when an ATM withdrawal will trigger a fee—and allow the customer to cancel the transaction at that time.
- Prohibit financial institutions from manipulating the order of check clearing or delaying the posting of deposits to increase customers’ overdraft loan fees.
- Amend the Truth in Lending Act to clarify that overdraft fees are finance charges, so that annual interest rates are reported. This would allow consumers to compare overdraft loans with other credit options—such as lines of credit, which typically offer annual interest rates of less than 20 percent.
I think these are good changes, but shouldn’t replace the account owner’s responsibility to know their account balances—or a rough estimate—at any given time, as well as his or her responsibility to keep their account in good standing.
Banks may not be too keen to list their one-time overdraft charges as an annual percentage rate. I’m not sure it makes sense to do so, either. Perhaps seeing a 99% APR would be enough to discourage people from mindlessly overdrawing their accounts.
When I looked at Gary Coleman’s advertising for Cash Call, I saw that these short-term or payday loan outfits are required to list their fees as annual percentage rates. Although they are one time fees for each loan, the nature of the loans make the fees comparable to other loans’ annual percentage rates.
Some of those rates were above 150% APR. I’d be interested to see how banks calculate an annual percentage rate based on overdraft fees.
Photo credit: aewolf
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I think of the 4 bullet points proposed, #1, #3, and #4 are appropriate. #2 leans too much towards nanny-ism, and I can just see someone suing a bank because “The ATM said I wouldn’t overdraw” when a check comes in right after the transaction.
More personal responsibility, not less!
Individuals overdraw their own accounts not banks. People should learn to balance their checkbook. There are a lot of ways to verifying if checks have cleared your account or not, online banking, telephone banking etc. Banks also have o/d protection, thru another account or line of credit. Even a 18% line of credit is cheaper than paying $32 per item o/d fee. While I’ll agree that the fees are excessive, if people took more responsibility for their own actions they wouldn’t be paying o/d fees.
I use to be a personal banker at a bank. Our fees were lower before we were bought out. We would always call customers to let them know abt being o/d. We would mention o/d protection. Some people didn’t have enough money for o/d protection thru another account. Others didn’t qualify for a line of credit or credit card o/d protection. I found there were people who were consistently on my list. Because they didn’t balance their checkbook, never check to see if they had money before writing checks.
If I was able to, I would help balance their checkbook. I would show them how much they paid in o/d/ fees. I think as long as most of the checks were being paid, a lot of people don’t care. That seemed to be the attidude of customers I dealt with. Never could understand it. I would not want to pay thousands in o/d fees a year. I wouldn’t want to pay even one fee.
I agree with all of these points especially #3 (#2 is a little overboard). the fact that banks use “high-low” check clearing to maximize overdraft fees is completely ridiculous.
Yes, we’d all be interested to see how banks calculate APR for overdraft fees, but that isn’t likely. In fact, now that banks are being scrutinized, watch for them to back the attack on payday lenders so as to turn the heat away from themselves.