Monday, October 19, 2009
“Just Say No” to High Cost Overdraft Programs
As Federal Reserve Board Gets Set to Adopt Tougher Rules
Bank of America customers should opt out of high cost overdraft loan programs now that the bank is giving them the option of doing so, according to Consumers Union, the nonprofit publisher of Consumer Reports. Last month, Bank of America said that it would make it easier for existing customers to opt-out of overdraft programs beginning today.
The Bank of America announcement triggered a number of banks to announce changes to their own policies, but these banks have not set firm dates for implementing these changes. In addition, Federal Reserve Governor Daniel Tarullo announced at a recent Senate Finance Committee hearing that the Fed will be issuing new regulations in November that will require banks to get their customers’ permission first before enrolling them in overdraft programs. However, it’s unclear how quickly this new “opt in” regulation will go into effect.
“Bank of America customers should say ‘no thanks’ to expensive overdraft loan programs linked to their debit card,” said Lauren Bowne, staff attorney for Consumers Union. “Overdraft loan programs are an expensive and abusive form of credit. Until the Fed issues strong new regulations and those new rules are finally implemented, consumers should check with their bank to find out if they can opt out of high cost overdraft programs.”
Bank of America and most major banks automatically enroll customers in so-called ‘overdraft protection’ programs, which are really high-cost loans that cost consumers billions of dollars every year. Banks are expected to collect more than $38 billion in fees from overdrafts triggered by debit and check transactions this year.
Debit card overdrafts could be prevented with a simple warning that there are not enough funds in the account, or by declining the transaction. Instead, most banks let these transactions go through and charge consumers a fee for each overdraft. The FDIC found that the median fee for overdrafts is $27 even though overdrafts triggered by debit transactions have an average value of only $20.
Automatic fee-based overdraft programs are the most expensive option for consumers. This high fee method removes the incentive banks might otherwise have to sell lower cost services, such as a link to a savings account to cover overdrafts or a line of credit. The FDIC has found that the median fee to cover an overdraft from a linked account is $5.
Bank of America customers can opt out of the automatic overdraft protection in-person at local bank branches or by speaking to a customer service representative at 1-800-622-8731.
One day after Bank of America made its announcement in September, Wells Fargo and Wachovia indicated that they will give customers the right to opt out of overdraft programs. However, neither bank has implemented this change yet. JP Morgan Chase has announced that sometime during the first quarter of next year it will change its debit overdraft program to an “opt in” process for all of its customers. Chase customers currently are not able to opt out of its overdraft program. Citibank does not allow customers to overdraft their accounts when making an ATM withdrawal or using debit cards. Instead, the transactions are simply not approved.
Lauren Bowne or Gail Hillebrand: 415-431-6747