Banks change policies on debit cards and overdraft fees

Before: You use your debit card for a $50 transaction.  You didn’t realize you only had $40 left in your bank account.  The transaction is denied on the basis of insufficient funds.

Sounds bad, until you consider…

Now: Same transaction.  But instead of being denied, the transaction goes through, and your bank charges you a $34 overdraft fee.  Even though you put more money into your account the next day.

Why is this happening?  Because banks have changed their debit card policies.  The default used to be that transactions were denied.  However, banks have changed the policy so that the default is “overdraft protection,” according to a report by the Center for Responsible Lending, a nonprofit and non-partisan research and policy organization that aims to curtail abusive lending practices.

Why are banks changing their policies?  According to the banks, the reason is for customer convenience.  However, the real reason is more likely that banks are looking to generate more fees.  If there’s one things banks are good at in tough economic times, it’s coming up with innovative ways to gouge their customers for more fees.  (Lord knows they’re not exactly renowned for empathy and understanding.)

According to the CRL, the average amount of overdraft fees is $34.  And the average shortfall by consumers is about $17.  That’s equivalent to a 200% interest charge on a loan that most people repay within a day or so.  And it sounds suspiciously like loan-sharking.

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