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Overdosed on overdraft fees

By Marcie Geffner ·
Wednesday, October 6, 2010
Posted: 9 am ET

“Most consumers avoid overdraft fees.”

That’s according to the American Bankers Association, or ABA, which recently released a survey of 1,000 people on the subject of overdraft fees.

The survey found that 77 percent of those questioned said they hadn’t paid an overdraft fee in the last 12 months. And indeed, it’s probably reasonable to characterize 77 percent as “most.” (The survey was conducted by Ipsos-Reid in mid-August and has a margin of error of plus or minus 3 pecent.)

Moreover, of the 21 percent who said they’d paid an overdraft fee, 29 percent said they’d paid only one fee and 21 percent said they’d paid two fees. Whether that 50 percent also qualifies as “most,” to use the ABA’s word, may be open to debate, but it’s probably not necessary to split semantic hairs over the question.

What’s more worrisome is the finding that of the 21 percent who said they’d paid an overdraft fee, 18 percent said they’d paid six-to-10 fees and 7 percent said they’d paid more than 10 fees in the last 12 months.

Do the math, and that’s 25 percent, or more than 5 percent of the survey population, who paid at least six overdraft fees in the last 12 months. At an average of $27 per overdraft, that’s an expenditure of perhaps $162 or in some cases more than $270 on overdraft charges by just 5 percent of the surveyed group. Other studies have found even higher concentrations of multiple overdraft fees being assessed on small percentages of consumers.

For those people: Ouch.

Also worrisome is a finding that of the 21 percent who said they’d paid an overdraft fee, 29 percent also said they would have preferred that the bank had returned or declined the payment. Twenty-nine percent is clearly not “most.” But still, that’s a sizable proportion of people who received -- and paid for -- a service they didn’t want.

Props to the ABA for the nifty blue, red and yellow piecharts, by the way.

And finally, if you paid an overdraft fee in the last 12 months, were you glad your payment was covered or would you have preferred that the bank had returned or declined the payment?

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Marcie Geffner
October 08, 2010 at 9:09 pm

An excellent discussion that shows different aspects of this issue: People want to be responsible. People sometimes make mistakes. An overdraft may--or may not--be what the customer wants, depending on the situation. Some banks do rig their systems to work against what the customer wants. Responsibility is good. Options are good. Clear disclosures are good. Manipulation, I think we would all agree, is bad.

Debra James
October 08, 2010 at 3:01 pm

I didn't see anywhere in the article where people openly blamed the banks for the overdraft fees that they incurred. Although it is mentioned that some people would have preferred for the bank to return or decline the payment request, I believe it would have been just as costly to the customer. Banks charge a fee to stop payments, and merchants charge fees for declined payments. Depending upon how much money was in the account it is still possible that the bank's fees could have overdrawn the account.

I agree that people should know if they have enough money in the bank before spening it, and even when there are times that mistakes or miscommunication (especially for joint account holders) happen the customer should still be held responsible. However, in some instances the banks were to blame for customer overdrafts, e.g., processing all debits and checks before posting credits and deposits on the same day (even for direct deposits and ACH transactions). In an instance like this, a person could possibly incur overdraft charges even though a deposit may have come through earlier in the day than the debits and checks.

Yes, people should perform due diligence with maintaining their bank accounts, but they shouldn't have to worry that their banks are manipulating their money in order to charge them fees.

October 08, 2010 at 12:15 pm

What I am tired of is when the banks decide that its ok to do the following:

The account has $4.00 balance
An ACH deposit comes in at midnight for $668.12
An ACH withdraw is done also at midnight, for $15.00

The bank processes the withdraw before the deposit, thereby incurring late fees of $38. THEN they process the deposit, which would have covered the withdraw.

This is wrong and a shyster way of doing things and drumming up revenue. Anybody who feels the banks are in the right for doing business this way, has never been on the short end of a bank stick before. It should be illegal.

Marcie Geffner
October 07, 2010 at 10:43 pm

Indeed, banking customers should balance their check registers, and it's not the bank's responsibility to do so. That said, however, banks have put out tons of marketing materials to promote overdraft protection and much of the information is deliberately confusing and misleading. Banks have also obfuscated how transactions are processed. That's not to disagree with the point, only to suggest that there's some accountability on both sides.

Erica R.
October 07, 2010 at 2:27 pm

It really depends for me. I was recently charged an overdraft fee for going negative by about $2, and was because I forgot to take into account a tip I had paid over the initial charge. I would have prefered the $5 I was trying to charge have been returned in that case, instead of going negative and being assesed a $35 fee. In another case, I had made a silly error transfering funds OUT of an account instead of in, and remedied the error right away. Two days later my rent check was presented, and even though I had been in contact with the bank the entire way, and even though the inbound transfer posted later that same day, my check was rejected. I received a black mark on an otherwise spotless tenancy record, and was charged a $25 return check fee, and also had to go get a money order for the full amount plus the fee. That's an instance where I wish the bank would have gone ahead and paid since they were well aware the funds would have been there any time... And I would have rather paid a $35 overdraft on the account and had my rent check paid than have to transfer the funds again, go get a money order, and pay my rent late.

October 07, 2010 at 10:13 am

I am tired of people blaming the banks for them getting overdrafts. The bank is not paid to manager your account they are only a facilitator. Your bank account is your bank account. A simple check register is an easy tool to use and if you use it correctly then you have the option to write that check or swipe your debit card because you know how much money you have. Take responsibility for YOUR actions if you are unable to manage you account maybe you should only use cash.