Overdraft Charges/Fees and Their Impact
Overdraft fees aren’t life-threatening. However many consumers would be shocked at how checks can be re-ordered and processed at some banks and credit unions, disproportionately affecting minorities, younger people, and lower-income consumers. The fees can rack up.
“It is a harmful practice that can make one overdraft turn into five, six, seven overdraft fees,” said Thaddeus King, an officer with the Pew Charitable Trusts’ consumer finance project.
Financially strapped consumers who overdraw checking accounts using their debit cards and checks can pay more than $400 a year in overdraft fees relating to ATM cards and debit cards, according to a report by the Consumer Financial Protection Bureau.
Consumers must voluntarily sign up for overdraft coverage for point-of-sale purchases with a debit card or transactions using the ATM. But signing up — without understanding how fees can be triggered — often can drive up costs, consumer advocates say.
More than a dozen credit unions across the country — including two of Michigan’s largest credit unions, Advia Credit Union in Kalamazoo and United Federal Credit Union in St. Joseph — have been hit with lawsuits challenging whether their members have been misled about what can trigger overdraft fees.
Practices being challenged include:
- Taking transactions out of the order they’re made. Some financial institutions have a policy of processing the highest payment, such as a mortgage, first before smaller debit card transactions. That can lead to more overdraft fees if you’re signed up for overdraft coverage and you use a debit card frequently, for example, for coffee, lunch, or other small purchases.
- Failing to properly disclose how “opt-in” practices can work. Simply put, things work a little differently with debit cards and many consumers still don’t know that. Consumers, for example, cannot be charged fees for overdrafts on ATMs and most debit card transactions unless the consumer has agreed in advance to “opt-in” for such coverage.
- Failing to explain how balances are calculated. Do customers or credit union members understand the terms for when an overdraft fee on a debit card could be triggered? Did the credit union disclose how balances are calculated and when transactions are viewed to be cleared?
“You’re unaware and you’re being deceived into what circumstances can put you into overdraft status,” said Philip J. Goodman, a Birmingham attorney and of counsel with the Serling & Abramson, P.C. Law Firm.
Consumer Financial Protection Bureau Report
Consumer advocates maintain that overdraft fees have turned into a “highly lucrative profit center” for some financial institutions.
Under federal regulations that went into effect in 2010, banks cannot charge overdraft fees for debit purchases and ATM withdrawals without a consumer’s earlier consent or without an “Opt-In.”
But quite often, when opening a checking account, a representative at the bank or credit union will put a piece of paper in front of a consumer to “Opt-In” for coverage relating to a debit card. Many consumers agree to such coverage because it seems sensible. Consumers often don’t want to be embarrassed by being turned down for purchase if their account is running a tad short.
The digging into the numbers is likely to continue, along with the criticism of high fees and unexpected outrageous charges on some consumers who can least afford it.
To view the full story in the Detroit Free Press Visit: Credit Union Overdraft fees