That little $5 purchase just cost you $39. That $10 cash withdrawal in the morning and $10 more in the afternoon cost you a total of $78. Crunch the numbers, and you have paid a hefty price for having overdrawn your bank account by $25. And it seems that your bank has made easy money by racking up these overdraft fees against you.
Revisions to Bank Fee Regulation
President Obama has criticized the harsh penalties banks and credit card companies, including high fees and interest rates placed on their customers. The President advocates a Consumer Financial Protection Agency to regulate practices such as overdraft fees, short-term cash loans, and cash advances.
Federal lawmakers, including Senator Chris Dodd, call for major reform of the industry they say takes unfair advantage of individuals and small businesses, unfairly charging fees for small overdrafts and inflated interest rates. Some research estimate banks earned a total of $36.7 billion in revenue last year from overdraft fees.
The average overdraft fee is $26.68. Many feel banks should notify you about the overdraft before the withdrawal, and then notifying you of the overdraft fee. In response, some banks said they'll soon cover the overdraft only with your consent.
Even the Federal Reserve entered the debate. While many have criticized the Fed as too slow responding to the consumer credit mess, the Fed has promised it will issue new credit regulations by the end of 2010.
Read the Fine Print
Many consumers are shocked by the steep fees charged to their bank accounts for overdrawing even a small amount. A common practice is "highest to lowest," where banks honor the highest dollar checks first, but then charge overdraft fees on the smaller checks, allowing a greater number of fees.
Sometimes a cash machine dispenses money once or even twice in one day, with a positive balance noted on the receipt, then charges an overdraft fee for each withdrawal, because a check comes in later that same day and causes an overdraft.
Read your bank's account rules carefully, including any updates or revisions you're sent. If the language is confusing, talk with the bank staff to be sure you understand when, how, and why fees are charged.
For example, how many days you have to wait after you deposit a check into your account for your account to be credited. Many banks consider checks deposited immediately only if they are direct deposit payroll checks. Don't assume you can write checks or make withdrawals on the same day you have deposited checks in your account and be safe from the sting of overdraft fees.
In the Event of Serious Disputes
If you have a serious dispute with your bank, credit union or credit card company, and you haven't been able to resolve it on your own, consult an attorney. Many attorneys will agree to represent you on a limited basis, charging by the hour for a brief consultation or for a limited-scope project.
The attorney will help you understand whether it will be worthwhile to have them write a letter or make a call to the bank on your behalf. If, for example, you've been slapped with numerous overdraft fees but weren't informed of the terms of these fees, you may have an attorney try to help persuade the bank to waive some or all of the fees.
If the bank has been sued in a class action suit for unfair or unethical lending practices, the attorney can help you to get in touch with the lawyers coordinating the case to see whether you can join in the suit.
It's also up to you to track your finances and know where your money goes. Banks are a business just like anywhere else and want to make money for their shareholders. However, it never hurts to question fees, charges or mistakes.
Questions for Your Attorney
- Can I negotiate my bank account fees?
- I withdrew money from my account and it didn't tell me I was overdrawn. Is there anything I can do to recover my money?
- How far do banking laws and regulations go in controlling everyday banking activities? For example, do banks decide when the banking day ends, say 3 p.m. Eastern time? What about posting items to my account?