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Chase adjusts overdraft fees

By David McMillin ·
Saturday, June 23, 2012
Posted: 6 am ET

You've probably heard of the infamous $38 cup of coffee for overdrawing a checking account. If you have an account at Chase, that expensive morning beverage won't be on the menu for much longer.

Beginning July 22, the banking giant will not charge overdraft fees on purchases of $5 or less. The bank's checking account disclosure document outlines the change, which includes insufficient funds fees, returned items fees and overdraft protection transfer fees.

It's a good PR move for the biggest member of the banking industry. However, it doesn't look like the bank's executives voluntarily decided to adjust this policy. Earlier this year, the bank settled a class action lawsuit for shady practices that reorganized transaction histories to make even the smallest purchases help trigger additional fees. Ann Carrns at The New York Times blog writes that the bank's $110 million settlement includes terms that agree to adopt this $5 or less policy for at least two years. Let's hope that the policy remains in effect after the summer of 2014, too.

Regardless of what banks charge for overdraft fees, it's crucial to know your balance at all times. Whether you're still balancing a checkbook or monitoring your checking account online, make sure you're keeping a log of which transactions haven't cleared. With a firm understanding of how much you have to spend, you'll avoid seeing that dreaded insufficient funds fee show up on your monthly statement.

Of course, there is an approach that will absolutely ensure you won't pay the bank for covering your charges: Opt out of the protection. While you may deal with the embarrassment of having your card declined, I think a moment of humiliation is better than paying an extra $35.

What do you think? Have there been occasions where you want overdraft protection even if it means paying your bank extra for your mistake?

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Mark Ellison
June 23, 2012 at 7:28 pm

It is absurd that Chase or any bank is allowed to charge fees for overdraft protection. The overdraft protection is a credit line, which functions like a credit card. The annual credit line interest rate at Chase is over 20%. On top of that, the bank gets $10 per transaction--- each time you access the credit line. Imagine a credit card company charging $10 every time you make a purchase, in addition to interest on the outstanding balance. It would be highway robbery. Why isn't that the case here?

I believe Mr. McMIllin is in error. It is my understanding that the $35 charge is for returned checks on overdrawn accounts WITHOUT checking protection. In other words, you get charged over three times more if you don't have the protection. But you shouldn't be financially abused at all if you have the protection. After all, you have to have good credit to get a credit line in the first place.

There are other sharp practices that Chase engages in. For example, the already-paltry interest rates on savings and money management accounts are cut in half every month that there is no activity in those accounts. The posting of interest does not count as activity.

And savings and money management account IRAs pay something like 0.009% percent interest, essentially zero. This forces anyone taking out an IRA to invest in securities or the tiny rates of Chase CDs. It is a sharp practice because with IRAs, you can't withdraw your money until age 59 without a substantial penalty, like a long-term CD. The IRA savings and money management accounts should pay more than their non-IRA counterparts, not less.

These practices should be kept in mind the next time Jamie Dimon starts crowing about record profits.

I've tried to get several prominent financial reporters to address these issues. Why they aren't interested is beyond me.

The only thing I like about Chase lately is the Visa Freedom Card, which can be used as a zero interest loan if you pay the balance in full every month, for which you get a good amount of cash back.

Ariel Gonzalez
June 23, 2012 at 8:58 am

Bankrate is the best on bank and rate updated information.
I'm a proud Chase bank client.