We’ve all been there – miscalculate your balance by a few bucks or even a few cents, and your morning coffee ends up costing you 30-some dollars because you’ve unwittingly overdrawn your account. Damned overdraft fees. Of course, since you didn’t realize it right away, tack an extra $35 onto the slice of pizza you bought for lunch, the pack of gum you bought on your way back to work and the beer you got with your coworker afterwards. Before you know it, you’re a couple hundred bucks in the hole. It’s a lucrative business – US financial institutions earned $32 billion from overdraft fees last year, up $400 million from 2011. But these nasty overdraft fees could soon be a thing of the past.
While the CFPB has been doing a good job of controlling predatory practices by the financial institutions as of late, they’re not on board with this one. Thankfully, some in Congress are. A new bill introduced by Representatives Carolyn Maloney (D-N.Y.) and Maxine Waters (D-Calif.) would prevent financial institutions from reordering your charges so that you’ll overdraw, or so that you’ll get hit with several fees instead of just one.
It will prohibit overdraft fees as a result of “holds” charged by places like gas stations and hotels. Banks will only be able to charge you one overdraft fee per month, and six per year. The overdraft fees they do charge you would have to be “reasonable and proportionate” – so no more $30+ fees for overdrawing your account by a few cents. You’d also no longer have to opt-in for overdraft protection.
Banks naturally oppose this legislation, but their public reason is pretty hilarious. Just listen to how Nessa Feddis, senior counsel at the American Bankers Association, defends the fees: “History has shown that when the government intervenes in how private markets price their services, there are unintended consequences that usually are adverse to consumers.”
Right. It’s in our best interest for banks to rob us blind.
Banking executives claim that most people prefer having the option to overdraw instead of having their transaction declined. They talk about these fees as if they’re some great, elective service that prevents the embarrassment of a declined card. But weirdly, somehow, according to a recent Pew study, 54% of consumers who overdrew did not realize they had opted for such an awesome service.
Unfortunately for us, the banks will probably win this one. Maloney tried to pass a similar bill in 2009 and 2012 and was unsuccessful. The House is also just too intertwined with Wall Street – only 46 representatives back the bill at this point. even our friends at the CFPB decided against taking any immediate action on the issue last month. The agency touts smaller, independent banks as an alternative to big banks, and community banks depend heavily on overdraft revenue to survive. You can see where the CFPB is coming from here. The good news is that community banks charge less for an overdraft– $25 on average. Many will also waive the fees altogether if you overdraw by less than $10 or if you don’t frequently overdraw.
It’d be cool if big banks listened to their customers and freely adopted policies like this, but for now the burden is on consumers. Watch your account closely. Switch to a community bank that’s more likely to work with you. And finally, write your representative and tell him or her that this is an issue that’s important to you. Share this article with your friends and encourage them to do the same – you never know what could happen.
Ever been screwed by a chain of overdraft fees? Tell us about in the comments section.