Tuesday, August 11, 2009

US Banks Earn $38.5 Billion on Overdraft Charges

Financial Times:

US banks stand to collect a record $38.5 billion in fees for customer overdrafts this year, with the bulk of the revenue coming from the most financially stretched consumers amid the deepest recession since the 1930s, according to research. The fees are nearly double those reported in 2000.

The finding is likely to increase public hostility towards the financial sector, which has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after being bailed out by taxpayers.

Editor's Note:  What would create even more hostility would be if consumers understood how banks actually set them up for these overdraft charges. 

Assume a "financially stretched" consumer has $140.00 in their bank account.  They go to the gas pump, swipe their debit card and because the total amount of the purchase has yet to be determined,  the bank puts a $150 hold on their account in return for the authorization.  But the "financially stretched" consumer don't have $150, they have $140...so there's $35 overdraft charge #1 right there.  Now, they pump $25 worth of gas, but are already "in the hole" because of the $150 "hold", so chalk up another $35.00.  

Now they make several purchases over the next 24-48 hours (the hold could last up to 72 hours) and each of those purchases comes with a $35 overdraft charge.  Yes, even the .99 Whopper Jr. costs $35.99!  Next thing you know, banks start earning $38.5 Billion dollars annually!

Solution?  Use your PIN Debit card instead of your Signature Debit card.  PIN Debit is real-time.  Therefore a transaction that would result in an $35 overdraft charge would "declined."  Still wonder why the "less secure" signature debit is being pushed over PIN debit? 
I can give you 38.5 billion reasons!

Read the whole story: Financial Times
 

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