by Broderick Perkins
DeadlineNews Group
You debit card bank may have coaxed you into signing up for potentially
expensive overdraft protection you don't need, if you manage your money
well.
Before federal overdraft fee regulations were put in place last year, the
vast majority of consumers, 74 percent of those polled said they would opt
out of overdraft fee protection, according to the National Federation for Credit Counseling.
The opposite has occurred.
Economic research firm Moebs Services says the opt-in rate
for overdraft fee protection is "75 percent and is rising."
Banks are projected to rake in $38.5 billion in overdraft fees in 2011,
$2 billion more than the $36.5 charged in 2010.
During boom times, overdraft fees kicked in when you made a purchase that
exceeded an amount in your checking or other account backing your ATM or
debit card.
Federal
regulations, effective since last year, say banks can no longer charge
you overdraft fees for allowing a purchase to go through when there's not
enough cash in your account to cover the purchase. Instead, they must refuse
the charge, much as they did long before boom times.
Now, it's up to you to opt-in for overdraft fee protection, and it can be
expensive.
That $3 mocha could end up costing you $27. Bankrate.com, says paying a
$27 fee for keeping a $20 overdraft for two weeks amounts to paying an
annualized interest rate of 3,520 percent on that short-term loan.
Wouldn't it be better to have the caffeine shakes one morning and be
alerted to the fact that your account is empty, rather than pay an
exorbitant fee?
Apparently not.
In same cases, the soft economy is driving the short-term needs of cash
poor spendthrifts who choose to take it in the wallet to satisfy urges for
instant gratification.
Some consumers simply prefer having as a safety net the option of a
short-term loan for extra funds to see them though until next payday.
It's risky and costly but old habits die hard. Others are simply
accustomed to having overdraft fee protection -- if only, "just in case."
Consumer advocates, including the Center for Responsible Lending (CRL), say the massive
sign up for overdraft fee protection is largely due to the massive marketing
efforts of banks using guile to fill their
vaults as well as under-reporting by the media.
"Recent comments in the media suggesting that Americans overwhelmingly
choose this costly product are suspect, in part because they overlook
millions of customers at banks that do not offer the costly option for debit
card transactions. These reports also ignore the impact of heavy-handed and deceptive marketing by banks who have
sold costly overdraft "protection" as a beneficial program," CRL
reports.
CRL says lenders:
• Don't always tell consumers there's no fee for declining a debit
charge.
• Present customers with a false choice between no overdraft
coverage or a high-fee overdraft program.
• Imply that a debit card won't function correctly unless a customer
opts in or that high-fee coverage has some advantage over lower cost
options.
• Don't fully inform customers about lower-cost options, say, a link
to a savings account that could be tapped to cover overages.
In addition to linking the debit card account to another account, the
National Federation for Credit Counseling says there are additional
options.
• Electronic statements. Sign up for email or text alerts that
notify you when your balance is low, reaches a certain point or otherwise
puts you in overdraft territory.
• Good record keeping. Record all withdrawals and purchases as they
are made. Record all ATM and debit card transactions along with any paper
checks and automatic withdrawals.
• Budget. Be frugal. If you don't know where your money goes, you
can't cut spending. Create of budget of all your spend. Pad your checking
account with a balance you won't exceed. Most consumers spend a similar
amount each month.
• Adjust payment due dates. If payment due dates don't coincide with
paydays, request a due date change. A little extra interest to cover the gap
for the first month will be worth what it could cost you over time and help
you organize your finances.
Other Articles:
Disclosure
laws protect consumers from more credit card debt
CARD Act
eases fear of plastic
Due to CARD Act,
Some Banks Cut Fees
Debit
card regulations may hamper benefits
Banks
crank up marketing to overcome overdraft fee losses
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