New Overdraft Rules Kick In But Do they Kick Hard Enough?
Overdrafts are big business for the big banks and even though the Fed has clamped down to protect the precious consumer (I'm sure that's high up on their to-do list), they may have forgotten to bite down hard enough with those big sharp regulatory teeth.
Before we get to that, let's talk about the impact overdrafts have on said sad consumer. And yes, that does read an annual percentage rate of 3,520%.
The findings of an FDIC study of bank automatic overdraft programs -- also called courtesy overdraft or bounce protection -- are no surprise to consumer advocates. For years, studies by consumer groups of automatic overdraft programs have shown them to be short-term loans that cost consumers billions in fees, while often denying them the ability to make an informed choice.
The difference this time around is a federal banking regulator has arrived at statistics that paint the same picture -- most customers aren't informed of the overdraft until after the ATM or point-of-sale transaction has taken place, and high fees mean that someone who overdraws their account at the ATM by $20, and is charged the median overdraft fee of $27, would incur an annual percentage rate of 3520 percent if they repaid the loan in two weeks. Even payday lenders don't charge that much.
How much does all this add up to for banks? A 2007 study by the Center for Responsible Lending said consumers are paying fees of $17.5 billion annually -- on automatic overdraft loans of $15.8 billion per year.
"This is a huge amount of money for the banks," says Jean Ann Fox, director of financial services at Consumer Federation of America in Washington, D.C. "But aren't we in trouble if the only way banks stay afloat is by sticking their most desperate customers with the highest priced credit that consumers have not applied for and don't know they're using?"
Meanwhile, new overdraft rules only apply to ATM and debit card transactions, not recurring transactions (like subscriptions) or check transactions. Which is ironic because we still call it "bouncing a check" even though few of us actually use them. Whatever, splitting hairs.
Anyway, banks can still unwittingly enroll customers in overdraft protection for these transactions and the sad little consumer will still be responsible for opting out of ATM/debit overdraft protection. I don't know about you guys but Chase accosted me every time I dared to use an ATM until I finally went online and opted the hell out. The best was the four screens of "are you sure?" confirmations that I had to click through to get the point across that I would be fine with being denied should I attempt to buy something with not enough money in my account. You know, being the responsible adult that I am, that's sort of my responsibility, not my bank's.
Thanks for the thorough babysitting, you little Fed bastards. I'm sure the big bank vendetta is totally going to be worth it and that there's no way the consumer will end up paying for this in the end.