Lending Club Blog

Consumer Preference for Being Declined

According 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.

Thursday, May 22nd, 2008 at 7:10 am

Comments (41)

  1. Someone should start a form letter to all banks that us poor folk
    can sign on to. Not me- I’m an idea rat.

    May 22nd, 2008 at 12:51 pm

  2. $350 in OD fees and counting:

    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.

    May 22nd, 2008 at 12:51 pm

  3. adam:

    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.

    May 22nd, 2008 at 1:02 pm

  4. Rene:

    Forget the letter someone sue these pigs!

    May 22nd, 2008 at 1:35 pm

  5. Money management:

    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

    May 22nd, 2008 at 1:39 pm

  6. Confused:

    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.

    May 22nd, 2008 at 1:43 pm

  7. @ 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/dontfollow">
    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/dontfollow">
    This article
    I’m still dealing with right now. I need to post
    an update.

    May 22nd, 2008 at 1:52 pm

  8. 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.

    May 22nd, 2008 at 1:56 pm

  9. Money management:

    @ Confused Amen sir

    May 22nd, 2008 at 1:57 pm

  10. Piscatawa:

    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.

    May 22nd, 2008 at 2:01 pm

  11. 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.

    May 22nd, 2008 at 2:11 pm

  12. Marcus:

    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.

    May 22nd, 2008 at 2:23 pm

  13. chuck1fl:

    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.

    May 22nd, 2008 at 2:27 pm

  14. 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.

    May 22nd, 2008 at 3:05 pm

  15. Mike:

    @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.

    May 22nd, 2008 at 3:20 pm

  16. 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.

    May 22nd, 2008 at 3:45 pm

  17. moneyman:

    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.

    May 22nd, 2008 at 3:52 pm

  18. 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.

    May 22nd, 2008 at 5:05 pm

  19. Sam Hill:

    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.

    May 22nd, 2008 at 5:18 pm

  20. Chris:

    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!

    May 22nd, 2008 at 5:31 pm

  21. throbo:

    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.

    May 22nd, 2008 at 5:59 pm

  22. Eddie:

    Screw the banks.

    May 22nd, 2008 at 6:38 pm

  23. Smitty:

    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.

    May 22nd, 2008 at 6:57 pm

  24. John Anon Smith:

    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.

    May 22nd, 2008 at 7:45 pm

  25. more-pills:

    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/dontfollow 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

    May 22nd, 2008 at 7:51 pm

  26. juancho:

    join a credit union you won’t see these kind of stupid fees.

    May 22nd, 2008 at 8:00 pm

  27. Brad:

    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.

    May 22nd, 2008 at 8:03 pm

  28. Intelligent Person:

    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.

    May 22nd, 2008 at 8:10 pm

  29. Casey:

    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.

    May 22nd, 2008 at 8:51 pm

  30. tim:

    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!!!!

    May 22nd, 2008 at 9:06 pm

  31. [...] 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 [...]

    May 22nd, 2008 at 9:41 pm

  32. 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.

    May 23rd, 2008 at 1:22 am

  33. Jose Perez:

    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.

    May 23rd, 2008 at 1:44 am

  34. Ben:

    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.

    May 23rd, 2008 at 6:12 am

  35. bobo:

    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.

    May 23rd, 2008 at 6:31 am

  36. Rahn:

    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…

    May 23rd, 2008 at 6:52 am

  37. 1747:

    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.

    May 23rd, 2008 at 7:00 am

  38. Anonymous:

    @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).

    May 23rd, 2008 at 8:09 am

  39. duh:

    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.

    May 23rd, 2008 at 11:51 am

  40. 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.

    June 3rd, 2008 at 11:26 am

  41. Chet:

    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.

    October 8th, 2008 at 11:00 am

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