Banks Auto-Enrolling Customers in Costly Overdraft Protection Programs
Posted on Sunday, March 22nd, 2009 and is filed under Lifestyle. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
We conduct banking transactions on a daily basis, some people more so than others. But what many consumers fail to realize is that some transactions, such as ATM and debit transactions, can cause them to have bank overdrafts.
Although some consumers want to opt-in for bank overdraft protection programs, by right, banks should not be permitted to automatically enroll their customers, states Consumers Union.
“Most banks automatically enroll their customers in so-called ‘overdraft protection’ programs, which are really high-cost loans that cost consumers billions of dollars every year,” said Lauren Zeichner Bowne, Staff Attorney for Consumers Union. “The Federal Reserve Board should protect consumers from unfair overdraft loan programs by stopping the fees unless the consumer makes the choice to opt-in to the loan program.”
A poll conducted by the Consumer Reports National Research Center showed that many consumers don’t actually understand how overdraft programs really work. The Federal Reserve is considering whether consumers should actually be given the option to opt-in before banks enroll them in the programs or opt-out after the banks have signed them up.
Based on the survey, 39 percent of consumers said that they thought their bank would not let their accounts be overdrawn because either the debit transaction would not go through, or the bank would allow it to go through and not charge a fee.
Overdrafts can actually be prevented, but instead of issuing a warning letter or declining the transaction, most banks allow the transaction to proceed and end up charging consumers for each overdraft.
Banks can get about $7.8 billion in overdraft fees alone and according to the FDIC, the banks will process transactions from the largest to smallest, resulting in the number of overdrafts being increased. Therefore, the Fed is being urged by Consumers Union to put a stop to this when they issue their new regulations of overdraft.
