Posted by Mike Smith :: 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.
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.
This letter I sent to around 30 Congressmen, of course, only 3 responded, and two with form letters.
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 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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