Posted by Lending Club :: May 22, 2008 @ 7:10 amAccording to a recent survey, consumers would prefer to be declined when using their debit card rather than be hit with an overdraft fee. This preference occurs regardless of the purchase price.
The results of the survey, conducted by The Center for Responsible Lending, were released in mid-April.
I have covered overdraft fees before in a number of posts, including Overdraft Protection and Colleges Add to the Overdraft Loan Problems. Banks offer many options to handle overdrafts. Unfortunately, the survey found that most respondents are currently enrolled in the most expensive option, a fee-based overdraft loan program that covers overdrafts in return for a $34 fee. People with lower incomes were in this category in even higher percentages.
Alternative options, such as linking your savings or credit card account to your checking account, are often available at much lower cost. The least expensive option of all, declining purchases that would result in an overdraft, is one that most consumers would prefer. Currently, overdrafts are typically approved and a fee is assessed. This is similar to the way credit limits don’t actually limit spending, but rather just trigger fees. 80% of those surveyed would rather have a $5 purchase declined than have it be approved but incur a $34 overdraft fee. Similar percentages (79% and 77%) were found for purchase amounts of $20 and $40, respectively.
Banks often tout their overdraft protection services as protecting consumers from an embarrassing decline of credit. I would much rather be embarrassed than hit with a huge fee. The majority of survey respondents agree. Review your bank account’s overdraft protection features to find the best option for your situation.
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41 Comments
Someone should start a form letter to all banks that us poor folk
can sign on to. Not me- I'm an idea rat.
Signed. Also, could banks deduct your smaller purchases first,
before the big ones? As it stands for every bank I've dealt with,
if you have $100.00 in your account, and you spend $5.00, then
$30.00, then $120.00, then $15.00, the bank will deduct the $120.00
first, then the $30, then the $15, and then the $5, ensuring 4
overdraft fees instead of the two you would have encurred if the
purchases had been deducted chronologically, or the 1 if the banks
were thinking about your wellfare instead of their bottom line, and
arranging payments in the most benificial manner for their
customers.
they know that, and they don't care. they get more money this way.
they see it as a smart business policy. banks aren't in business to
actually help anyone.
Forget the letter someone sue these pigs!
I think a lot of the problem comes from misunderstanding how a
Debit card is different from a Credit card. A credit card has a max
that is set and you can draw towards that max. Once you hit it,
that's it. A debit card on the other hand, your max changes based
on how much is in your account. One day you may have a decent
amount, like after payday, the next day you might not (like if you
turn around and draw cash out). The responsibility is on you to
keep track of what is in your account to not overspend it. The bank
tries to keep up to date with your funds, but if you have a $400
balance and use $350 on the card and write a $100 check you are
gonna go overdraft. Usually on a credit card only card transactions
are going against it, but with a debit card you can have checks,
cash out at the bank, cash out at the ATM, and payments at stores.
When all those converge at the same time if the amount going out is
more than you got, you are going overdraft. The banks are not
usually hoping for overdrafts, when someone goes overdraft they are
spending the bank's money since they have spent more than they have
put in. The charge is a punishment to make you want to avoid going
overdraft. The situation is not entirely preferable for the bank
because they are out the money you overdrafted by and don't really
have a guarantee they will get it back. I think that there are too
many people these days that don't understand how to manage money.
They weren't taught by their parents or in school and just have to
wing it. When you go overdraft, you pretty much can only blame
yourself. If it is a mistake on the banks part you got to call
them, they may not know something wrong occurred. They usually fix
it and refund the charges. A fool and his money are easily parted
I know this is radical thinking, but how about people don't spend
more money than they have? You could actually *gasp* keep track of
your spending and know when you don't have money for something.
@ Confused, While I completely agree with you, this will not happen
because banks treat overdraft fees as an income opportunity - they
structure their accounting methods to generate the maximum possible
amount of overdrafts. Overdraft fees have gone from a sideline
business to a core function of American banks, with, IIRC, around
30bn in profits from overdraft fees alone in the last year. Here
are two articles I've written about overdraft fees. "http://hearmythunder.org/cgi-bin/index.cgi?action=viewnews&id=239" rel="nofollow">
This letter I sent to around 30 Congressmen, of course, only 3
responded, and two with form letters. "http://chaosmotor.wordpress.com/2008/05/16/commerce-bank-is-a-fraudulent-company" rel="nofollow">
This article I'm still dealing with right now. I need to post
an update.
Your idealism is endearing. Firstly, it is not possible for
consumers to track their purchases in the same way that banks do.
These days most major banks do not use a linear time-based
transaction cash accounting, they use a post-hold-release method.
Consumers are perfectly capable of the dead-simple, comprehensible
linear cash accounting. Consumers are not capable
of using a post-hold-release accounting method because that method,
which the banks use to calculate overdraft fees, requires more
information than is available to the consumer, such as when the
transaction is first posted, how long it is pending, and when it
finally clears. Secondly, we do have a way to
automatically keep track of our spending and not overspend - it's
called debit cards and online banking. Respectable banks use a
fully transparent accounting method that fully and accurately
represents all transactions the system has recorded on their online
banking accounts. Unfortunately, most major banks use an obfuscated
system that I described above to maximize their overdraft fees.
@ Confused Amen sir
How about knowing how much money you have before you go shopping or
use a credit card. I know the concept is hard to grasp for Joe Q
Beercan, but it's something worth learning.
BofA slapped me with $175 (5 x $35) in overdraft fees in
one day a few months ago because I made 5
separate, small purchases on a day that my direct deposit usually
drops, but didn't. All in all I probably bought $50 worth of stuff.
I'd much rather just have been told that my card was declined and
paid with a credit card.
Banks post largest dollar items to ensure that they are paid. For
example, your mortgage or rent check tend to be more expensive then
a check for $25. Having a small check bounce rather then getting a
past due mortgage notice tends to be a smaller problem. What you
can do to avoid it; Keep an active check register by
writing everything down. This will keep you from
spending more than your money so that you don't have to spend the
banks money. Remember that you signed an account agreement form to
have an account at that bank. Having a bank account is not a right,
it is a privilege. If you don't like your bank, close the account
and go to a local check cashing store and carry cash.
I watch my account like a hawk! My check book is usually balanced
to the penny...... except that one time where I made a .27 cent
error in my math. Bam! $37.00 overdraft fee!
Amazing! I hate my bank.
Whenever I open a new account, I specifically ask the bank not to
give me "overdraft protection" and repeat "never give me any money
that I don't have". If they had refused, I would have taken my
business to another bank. In my experience, most banks will drop
that "feature" from your account if asked, but they certainly don't
advertise that option.
@MoneyManagement To your point that "A credit card has a max that
is set and you can draw towards that max. Once you hit it, that's
it." please read my referenced post on "http://blog.lendingclub.com/2008/05/05/credit-limit-triggers/">credit
limits. They too have become more of a fee trigger than an
actual limit.
With Bank of America you can set up what is called a pay-none
account, you will receive no overdraft protection,
and therefore overdraft fees. But if you write a check for which
there is not funds, you will receive a NSF fee.
I know its almost an unknown word in the us, but
get a debit card instead of a
credit card, the debit card only let you use money
you actually have in your account. Just like 99% of americans use
credit cards, 99% of europeans use debet cards.
Credit unions are viable options. Mine will automatically transfer
money from my savings account if I overdraw on checking. If I go
over my Visa limit, funds will come from either checking or, if
there isn't enough, savings. It's all automatic and free, so I
never have to worry about the embarrassment when my card is
declined.
A banker will tell you that they can't keep track of your balance
unless all you ever use is cash. For instance, a store can delay
processing your debit payment for some time period, so the bank
doesn't know what all you're doing with your card over some period
of time and a lot of spending can come in at once. Same goes with
checks. So, the only option they have which is good for you is to
link you account to a savings account or credit card to supply
funds when you overdraft. So seemingly banks cannot keep accurate
track of your balance for you. Not that I don't think the fees are
outrageous. Since banks aren't likely to be regulated in this
regard any time soon, I would recommend a credit union and using
cash as much as possible.
You can get those overdraft fees waived about 70% of the time if
you: * speak politely and choose your words carefully * talk to the
right person in the department * socially engineer your way into
fooling them of their own game It's not the banks responsibility to
pop-up and tell you "Hey, you don't have anymore money left in your
bank so you cannot swipe". Matter of a fact, there might be a time,
in case of an emergency let's just say, where you will need to
swipe your card (gas, tires, roadside assistance, etc.). If you
were to be blocked, then it would be inconvenient for you. Just
watch your money; manage it. Don't go around thinking that you may
have enough, you must know that you have enough.
It's not that hard. You're not constantly doing calculations. I do
my banking online and before I leave the house, I will always check
my account balance and see how much I got. I pay all my bills
online and keep track of which payments I have sent out and how
much money I really have. Just manage your money!
Manage, manage, manage!
I work in a bank so I know what I'm saying. Banks make their money
off the lazy and stupid. This is a giant money maker for the banks.
If you cant keep track of your balances pay cash. I wish I could of
said this in a fancy and funny way but this is reality. Sorry.
Screw the banks.
As someone who's studied the laws of payment systems, I'll say that
anyone who used a debit card in favor of a credit card is a fool.
Given both the over-draft issue, and the lack of any of the Federal
Laws that protect borrowers (i.e. credit card users) after the
payment has been made make the debit card a very poor choice for
payment.
I work at a bank that offers 'overdraft protection'. What they
don't tell the customers is that
two free options are available, either an
overdraft loan (where all they have to do in pay interest on the
amount of money 'borrowed' until it is payed back) and an automated
transfer from another account such as savings if checking is
overdrawn. These options are both better than the
$30 overdraft fee, which some customers incur when their account
goes negative by as little as a few cents! I'm trying to change
this 'from the inside', but the prospect of 'free money' is too
hard for the bank to give up.
Ah, banks.... We need them, but don't forget that they need us too.
Do you want to stand up to the banks and send a message that we're
tired of their actions? http://thisjune5th.com A ten day
"bank holiday" has been proposed for June 5th (just a few weeks
out). The simple plan: Just remove as much money as you can from
the banking system on June 5th and hold the money for ten days or
so. Check out the site. Watch some youtube videos. Read some
forums. Lets all take a united stand against the banks next month
join a credit union you won't see these kind of stupid fees.
A friend closed her bank account. She forgot that
she had her debit card linked to her iTunes and a
few months later made a purchase. Instead of declining the charge,
they assessed it as an overdraft against her
closed account. Because she had moved (and not
notified the bank of her new address because the account was
closed) the notices never got to her until the
bank reported her to ChexSystems and now she has been banned from
even opening an account at all major banks (let alone getting any
kind of credit) for five years because of one
accidental $0.99 charge. Oh, yeah, there is no way
to get off this list. Before you judge people as "lazy and stupid"
realize that one tiny, easy mistake can ruin you financially. The
banks need to change these practices and just decline charges with
insufficient funds or against closed accounts.
How about let's balance our checkbooks like any 10 year old can do
and quit whining when we're stupid? I know the $30 charge sucks,
but it's your damn fault. All you need is a pencil and a 5th grade
education (or less) to balance your checkbook and not overspend
like an idiot.
I would also like to be declined. If we kept the current system
though, I think the damages should be limited to the amount you go
over, capped at say $30. Being charged $39 for going $2.19 over the
limit is legalized theft. Especially when they approve 5 more
transactions.
from prior poster: "The banks are not usually hoping for
overdrafts, when someone goes overdraft they are spending the
bank's money since they have spent more than they have put in."
Awwwweee!!! how sweet of the lovely bank!!!!
[...] Consumer Preference for Being Declined I know a lot of people
(myself included) who’ve been hit with overdraft fees. It isn’t
pretty. (tags: finance money banking) Posted by Jeff Kelley Filed
in Uncategorized [...]
throbe: said "Banks make their money off the lazy and stupid." The
people who are forced to absorb these exorbitant fees most often
did make mistakes or poor decisions and paying a penalty for this
is not a problem. But the size of the fees and the structure, which
encourages and compounds this scenario is a big problem. If someone
is $1 short in their account they should not have to pay $70-$80 as
a penalty. This is what happens everyday to people who are really
struggling and it should be a crime.
My sister got hit twice with these overdraft fees. Once for $400.00
and then a few months later for $1700.00. I had to cover her for
the $1700. I gave my sister $2000.00 to put in her account. The
Wells Fargo manager told us that they had done us a favor by
charging extra $34 in overdraft fees for a $3 MacDonalds breakfast.
They did this near 50 more times to rack up $1700. I tried
complaining to the California Attorney General but was told that
the Federal Government took away the states right to protect the
consumer with bank issues. The Federal Dept in charge of the banks
I complaint to dismissed the complaint for not having it signed in
the right place. We need to vote out the whole US congress. How
about a constitutional amendment that does not allow millionaires
in the US senate- just regular folks. These corporations are raping
the middle class- from $4 gasoline (I hear it going to $10 or $15
per gallon). If you think it won't to $10 then you better check
Europe- it is $9 a gallon over there (when converted from liters).
These overdraft fees are highway robbery. I propose we pass another
constitutional amendment to tax the rich on net worth (not income).
Let's give them their flat tax but tax (10%) them on worth. Tax
them 10% of their net worth every year. Mr Gates (worth $70
billion) please send $7 billion to the US treasury this coming tax
year and $6 billion next. Maybe then Mr Gates won't send our jobs
over seas or want to import cheap labor to replace American
workers. Also screw free trade- tariff all goods imported to this
country to pay for the unemployed workers.
Most, if not all, Canadian debit cards work this way. And, I
double, Mr/Ms "Money management" that one could claim that this is
because an entire country full of people is incapable of handling
their own finances.
yes so dont act all surprised when the people elected by the "lazy
and stupid" apply ham fisted laws to address the problem, which
inevitably harm the banks bottom line.
This will not go away voluntarily, and banks own too many
politicians to get a fair look at this by the govt. Your
only choice is to no play their game. Either keep
extra $$$ in your account or use another means to address this.
Sadly, this type of gouging will not be changed in
this country. Look at the recent govt. handling of the SubPrime
meltdown for a good example of who your govt is protecting...
dear poor income america, then wise up and don't sign on and learn
to control your finances first and then you (and we) wouldn't be in
this (subprime loan) situation.
@19 Sam Hill: What? You cant get an debit card that forces the POS
machine to check with the bank if there is enough funds? And I
haven't paid with a cheque for a long long time, nor has anyone I
know. (Too many look suspiciously at you if you pay with one).
uh.... yeah, bank, could you make less money? thanks. -signed,
people who don't know how to check their balance. people, dont be
stupid, this will never happen.
I love how so many people suggest balancing a register, as if that
is a way to avoid overdraft fees. Here's a clue - banks do
not use time ordered linear registers. Keeping a balanced
register is not, in any way, a
guarantee that you will avoid overdraft fees, because that
is not the accounting method banks use. In fact,
bank accounting methods seem to be engineered to exploit the common
person's use of a linear register to prompt overdraft fees that do
not show up using a linear register but do show up using a bank
accounting method - that is, their accounting is designed to
invalidate the use of a linear register and expose you to
additional charges that do not occur with linear registers. In
short - Anyone saying to balance their checkbook (register) to
avoid overdraft fees doesn't understand the situation but wants to
feel superior to people who have overdrafted, and thus those
proponents should be ignored without consideration.
I keep a separate account for online purchases, so that when
Amazon.com "loses" my CC number on an unsecured laptop or
something, Russian hackers can't Hoover my bank account dry, as has
happened about twice now. But Wells Fargo refuses to take overdraft
"protection" off the account! So, what's the point? Now the Russian
hackers get the twenty-and-change in the account, plus as much as
Wells Fargo will let them take, and then WF comes after me
for the money they handed out as a "courtesy"! Maybe somebody can
explain to me how this is a failure of my own personal
responsibility when it looks like a criminal failure by WF to obey
my instructions.
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