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Overdraft fees have been a thorn in the side of bank customers for years, and the total amount of money that banks take in due to overdraft fee charges has been on the rise. This has been due mainly to the widespread implementation by banks of overdraft protection programs tied to checking accounts.
The sheer amount of income due to overdraft fees that banks have been enjoying has been staggering - to the tune of over $25 billion (with a "b") per year for the past several years.
At first glance, the concept of banks getting compensated to cover debit charges, credit card charges, and check charges that are made by their customers against an account with an insufficient account balance seems fair. And, in principal, it is: after all, bank customers should just be more careful with how they balance their account, right? Well, yes and no. Like most situations where money is on the table, things are not quite that simple.
Deceptive Overdraft Practices by Banks
Many responsible bank customers feel that their banks practice what amount to deceptive practices. For example, some banks have admitted to something called transaction stacking, whereby they will process high-value pending charges before low-value charges for a given bank customer, thereby increasing the chances of an overdraft occurring on a given day.
Some customers also suspect that their bank is purposefully timing the processing of outstanding checks so that the checks "hit" the account when the balance is not large enough to cover them.
But, one of the bank practices that takes many customers by surprise is that of allowing debit charges to merchants to get processed - even when the customer"s account balance is too low to cover them. On the surface this seems like a courtesy, but the resulting overdraft charges of $30 or more per instance don"t feel that way to most customers.
Banks counter that this last practice is not unfair because, after all (they say), customers have agreed to enroll in the overdraft protection programs that authorize the bank to do so. The trouble is, most of these programs have traditionally been "opt-out," which means that if customers don"t ask NOT to be enrolled in the programs, they are automatically enrolled upon account creation.
The Fed Steps In with Opt-In Requirement
It is for that reason that, starting on July 1, 2010, banks are required by new Federal Reserve rules to make their overdraft protection programs opt-in rather than opt-out. The new provisions mean that:
1. Customers must be given the opportunity to agree to or reject enrollment in overdraft protection
2. Before opting in, they must be given the opportunity to fully review the bank"s overdraft fee policy
3. Customer who choose not to opt in must be offered the same pricing and service terms as customers who do (in other words, no discrimination based upon enrollment status)
Are These Rules Enough?
These rules will likely go a long way to reducing total customer expenditures on overdraft charges, since undoubtedly some customers will choose not to enroll in overdraft protection. However, for those customers who do choose to enroll, most of the other seemingly-deceptive overdraft practices will remain in effect - continuing to cost customers billions.
An Alternative to Not Opting In
Another choice that bank customers have is to switch to a no-overdraft-fee bank . These banks promise to never charge an overdraft fee - even when the customer makes a charge or writes a check that overdraws the account. No-overdraft-checking accounts may be just what the doctor ordered when it comes to saving hundreds of dollars each year in overdraft fees for many bank customers.
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Source by
Everett Maclachlan
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