by Broderick Perkins
DeadlineNews Group
(4/29/2011) Erate Exclusive - Fewer debit card holders than previously
believed are opting-in for expensive overdraft protection, and that's good
news.
However, those who do opt-in are often pressured or misled into signing
up for the coverage.
The Center for
Responsible Lending (CRL) conducted a survey earlier this month and
found that only one in three of some 1,000 debit card holders surveyed chose
to take overdraft coverage.
Previous studies, including one by Moebs $ervices said, "The overall consumer
opt-in rate for overdrafts on debit cards and ATMs is 75 percent and is
rising."
Debit (ATM) cards are typically tied to checking or other liquid accounts
and used to make ATM withdrawals (and deposits) and retail purchases.
Federal rules say banks must notify
debit card holders of their right to opt-in to (request) overdraft fee
protection, which costs an average $35 each time a cardholder goes over
their cash balance. The amount is about equal to the cost of a dinner for
one, movie for two or a week of daily Starbucks stops.
For cardholders who do not opt-in, don't have another money account
backing up their debit card account, and don't have sufficient funds in
their checking, the lender must deny, without charge, the ATM withdrawal or
purchase transaction.
Denying charges against an account with insufficient funds was how banks
conducted business decades ago. Then they discovered the regulatory loophole
of overdraft fees and began making what amounted to unsolicited payday loans.
Banks are projected to rake in $38.5 billion in overdraft fees in 2011,
$2 billion more than the $36.5 charged in 2010, according to Moebs -- if
those figures are correct.
With the loophole now closed, banks are looking for ways to dupe cardholders into
opting-in and keep their vaults stuffed with overdraft fee cash.
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.
CRL's survey this month shows a slightly higher rate of cardholders
who've opted in because banks use "scare tactics and other misleading
practices" to sign up cardholders.
The survey found that of the 33 percent of respondents who did opt in:
• Sixty percent said one reason they signed up was to avoid a fee if
their debit card was declined. In reality, a declined debit card transaction
costs zero.
• Sixty-four percent said another reason they signed up was to avoid
bouncing paper checks. Opt-in rules don't cover checks, only debit card and
ATM transactions.
• Almost half of those who opted in simply wanted the bank to stop
barraging them with op-in messages by mail, phone, email, online and in
person.
The report said Citibank and Bank of America ended fee-based overdraft
protection because the majority of their customers didn't want it.
"But many other banks and credit unions still engage in this unfair
practice. The Fed and other regulators should implement reforms that
financial institutions can't circumvent through high-pressure, deceptive
marketing," says CRL.
Here's a sample of the come-ons, ruses and head fakes found in
overdraft coverage marketing materials collected by CRL:
• Come-on: "We Need to Hear From You . . . To keep your account
operating smoothly . . ." "To avoid any interruptions in how we service
your account, we need to hear from you."
Fact: Do nothing, don't call your bank, don't opt-in and you are
automatically opted-out of overdraft coverage.
• Ruse: "Your Debit Card May Not Work the Same Way Anymore Even If You
Just Made a Deposit." "Please keep in mind that this option (not opting in)
may prevent you from completing everyday transactions including: Any store
and gas station purchase, emergency home and car repair...purchases when
traveling, medical or health emergencies."
Fact: As long as you have sufficient funds in your account you can
make purchases as you always have, without opting in. Keep in mind, in some
cases, no matter how much you have in your account, your bank may have
attached a single- or daily-purchase ceiling to your account, but this has
nothing to do with opting-in.
• Head fake: "Save money by avoiding retailers' returned check
fees." "Relax and protect yourself from the inconvenience of an overdrawn
account and retailer fees."
Fact: The overdraft fee rule has nothing to do with returned
checks, or what your retailer may charge for a bounced check. However, you
can bet your bank will gouge you on bounced checks, even if you do sign up
for debt card account overdraft protection.
• Lure: "You can protect yourself from the inconvenience of declined
transactions and additional fees normally charged to you by merchants for
returned items. (CRL emphasis added).
Fact: Again, the rule has nothing to do with retailers' fees, in
this case, for returned items. Retailers typically have liberal, short-term
(30 days), no-fee return policies on most items. You may have to pay a
restocking or inventory fee for large items, but that's not impacted by
federal overdraft fee rules.
Other Articles:
Payday loans
put borrowers on debt treadmill
Celebrate
'Financial Literacy Month'… frugally
Banks
winning overdraft fee war, consumers losing billions
Disclosure
laws protect consumers from more credit card debt
New
consumer finance bureau opens to criticism
|
