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August 21, 2009
Overdraft protection programs
With "protection" like this, who needs enemies? Unlike checks, which can not be declined in advance, debit card overdrafts are allowed to go through so they can change you an overdraft fee and make a profit.
I could be wrong, but I think credit card companies do the same now as well. They only decline purchases if they suspect fraud. If you go over your limit, they are glad to let you, then charge you a fee.
Not many people would knowingly pay more than $35 for a cup of coffee. But far too many people are getting saddled — with no warning — with outsized bills for minor purchases, under a euphemistically labeled “overdraft protection program” that most major banks have adopted over the last 10 years.Before that, most banks would simply have rejected debit transactions, without a fee, when the card holder’s account was empty. Now, they approve the purchase and tack on a hefty penalty for each transaction....
Banks have historically covered bad checks for valued clients, who were invited to opt in to overdraft protection or to link their checking accounts to savings accounts or to lines of credit. But as more people began to use debit cards, the banks started to view overdraft fees as a major profit center and started to automatically enroll debit card holders into an overdraft program. Some banks instituted a tiered penalty system, charging customers steadily higher fees as the overdrafts mount....
Some bankers claim the system benefits debit card users, allowing them to keep spending when they are out of money. But interest rate calculations tell a different story. Credit card companies, for example, were rightly criticized when some drove up interest rates to 30 percent or more. According to a 2008 study by the F.D.I.C., overdraft fees for debit cards can carry an annualized interest rate that exceeds 3,500 percent.
Posted by Mike at August 21, 2009 04:25 PM
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