Be careful when banks offer to do you a favor. It could cost you up to $35 each time they pay a charge you have insufficient funds for. Called “Courtesy Overdraft Services” banks provide this favor as a help to their clients who are either faced with having the charge denied or having it honored.
“If the bank bounces the check, the consumer will pay a fee to the bank; the consumer will likely pay a fee to the person to whom the check was written; the consumer may also face late payment fees and delinquencies if the check was written to pay a bill; and the consumer may also be at risk of violating state laws pertaining to bad checks,” testified Richard Hunt of the Consumers Banking Association before the House Committee on Financial Services, October 30.
“If the bank denies a debit card transaction, the consumer may be faced with a plate full of food or a cart full of groceries and no way to pay for them. With this in mind, it is not hard to understand why consumers generally prefer that their overdraft transactions be honored, even if they result in overdraft fees.”
But consumers are fighting mad about this courtesy. Horror stories abound of people who had to pay the $35 courtesy fee.
“I wish they had just denied the charge,” Sheila Pinkney told The Final Call. “I thought I had the money but was short. Just deny it don’t pay it and then charge me $35 each time I do it. My shopping spree cost me an additional $105. The least they could do is ask me if I want them to do me a favor and I would politely say, no sir.”
Congressional proposals to rein in abusive overdraft practices are long overdue, Center for Responsible Lending executive Eric Halperin also testified.
Mr. Halperin, director of CRL's Washington office, explained that bank overdraft programs, which cost consumers $23.7 billion last year and are among the most predatory lending products on the market.
"Charging people a $35 fee for a small, debit card transaction is unacceptable," he said. "It doesn't save them bounced check fees, it simply skims money from their account and puts them in a bind."
Read more in The Final Call...