Bank Checking Account Overdraft Fees
The financial institutions are going to meet their come-uppance all the rest of this year, as President Obama's consumer-friendly laws begin to clamp down on all the financial service providers in our lives. But why did Bank of America give in and yield voluntarily in a profitable areas as a way of taking money out of your account via overdraft fees. The bank recently announced that it was eliminating it. It used to be that if you used your debit card when you shopped for something, and you didn't have enough money in your bank checking account, they would let you purchase it anyway, and then penalize your with fees for the overdraft.
The way it stands not is, if you try to buy something without enough cash in your account, you'll just be turned down, no questions asked. This must not be good news for the Bank of America since overdraft fees account from debit cards rake in 60% of the fees. And Bank Of America is the nation's largest debit card issuer. This is going to shave millions of dollars off its bottom line, and will eat into other banks profits as well.
You can still have an overdraft facility on your bank checking account if you choose; but it will be opt-in. If you happen to be at an ATM or a store checkout, and you're being billed for more than you have, the machine will tell you that you can go ahead, but at penalty of $35 in overdraft fees. And you can still have your overdraft facility for checks or bills for a fee. Banks charge $35 dollars and more for penalty fees, if you went over even two dollars more than you had.
For the banks, it's a windfall - if they put out money on a formal loan, they wouldn't make $35 off $2, now would they? The banking industry last year alone made something like $25 billion on overdraft fees at ATMs and checkouts. This new practice is certainly going to effect their bottom line when it comes into effect on July 1. Banks are asking people to opt in for overdraft services nowadays and a means to get their extra charges.
Are the banks the bad guys? Let's look at both sides of the story. I once worked for a bank about two years ago, and I left because it made me feel bad the kind of practices I went along with working for them. For instance, let's say that a customer has $100 in her bank checking account. She first uses her debit card to spend $10 at Burger King, she then spends $50 to pay her cell phone bill, and then she spends $102 on gas for her car. That means that with the first two purchases, she was completely within her limits, and she should be charged a penalty only for the last purchase. What they'll do at the bank though, is, they will charge her the $102 for gas first, so that it wipes out her account, they'll charge her penalty for it, and then they'll record the other two smaller expenses. That way, they get to charge for $35 penalties three times instead of just once, if they did it the right way.
But in their defense, the banks argue that they've been pushed to such unfair extremes in their industry. Banks have been made to comply over the years to consumer protection laws hurting their bottom line. They say they've been regulated and taxed big time for decades, and they have no choice but to do what they can to claw their way back into profitability.
Another great source of fees for financial institutions is the extra markups on personal checks given when customers order designer checks. Banks actually markup these checks by fifty percent or even more since they buy them from a 3rd party source. By ordering direct and using designer checks coupon one can save even more plus one gets a larger choice of motifs and scenes.
As such, these practices are unfair; but they say that most of their rules are only to apply to people who overdraw. The simple way to avoid most of their unfair practices, they argue, is to simply live within your means.
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