Great article at USA Today about steep fees involved in customer overdrafts gave me some insight into some very questionable bank practices.
While recent legislation has been crafted to cut down on other forms of predatory lending especially the mortgage and credit card industry, the overdraft fee area remains largely unregulated.
Here's an example, from the article, on how one customer amassed exorbitant overdraft fees.
Sarah Davis, 25, paid $600 in fees over three days because of a smaller-than-expected paycheck and her bank's policy of allowing repeated overdrafts. She says she understands that banks need to make money. But "when (the policy) starts to affect the people working minimum-wage jobs, then it's not the most socially responsible," says Davis, a part-time employee at a bookstore.
This happens because the banks have gotten more aggressive about collecting fees and discouraging refunding overdraft fees
Wachovia, for instance, is discouraging employees from refunding overdraft fees. A 2007 bank memo obtained by USA TODAY tells employees that the fees "make up a big percentage of our revenue and is (sic) a HOT button among leadership." Wells Fargo, which owns Wachovia, says it educates customers but also has a "responsibility to shareholders" to collect overdraft fees.
Bank of America now allows consumers to overdraw 10 times a day, up from five last year. Even so, the bank is charging a lower fee if consumers overdraw by less than $5 a day. Spokeswoman Anne Pace says the bank wants to help customers but must adjust policies if costs rise.
Our Commentary
Millions of Americans have bad spending habits and have remained lax in their financial discipline even in a recession. However, the banks should not prey on their customers through such predatory practices. Allowing customers to overdraft continues times and charge a $20-$35 fee for a $2.00 purchase should be regulated. Overdraft fees have become the highest percentage of consumer fees. Furthermore, the banks have become deceitful in their practices to encourage customers to overdraw their accoun. We have evidence in bank memos.
Banks have simply become creative in finding new ways to make a profit since they have been regulated in credit card fees and unsavory mortgage practices. Regulators and legislators should be considering how these practices are affecting customers in a recession. Luckily there are a couple of legislators that realize this problem and considering action.
Senate Banking Committee Chairman Chris Dodd, D-Conn., said if the Fed doesn't curb overdraft abuses, he'll "pursue legislative action." Rep. Carolyn Maloney, D-N.Y., has sponsored legislation requiring banks to get consumers' permission to cover overdrafts, disclose APRs and pay transactions in a way that doesn't increase fees.
Banks are inbusiness of making money and reasonable overdraft fees should be in place for customers who use money they simply do not have. However, the banks should not set up their systems to encourage customers to overdraft their accounts. When they start coming up with a system to trick the customers to overdrawing their account they have gone way to far. What became a courtesy offered to customers has morphed into a practice that just seems to take advantage of the consumer.