Attacking Banks on Overdraft Fees
Even as some of Congress’ recently enacted credit card reforms go into effect today, a New York Times editorial reminds Washington that the banks are still cheating customers with overdraft fees charged to debit card users. These fees, which average $27 a pop, are slapped on consumers when purchases exceed account balances, regardless of how much the purchase is for. The banks call it a protective service, but consumer advocates and many Democrats say it’s evolved into a profit engine inviting abuse, particularly because most customers are automatically enrolled in the service, and aren’t warned at the sales counter that the $3 latte they’re about to buy is going to cost them $30 instead.
Rep. Carolyn Maloney (D-N.Y.) has a bill that would require banks to make some of these disclosures, but with health reform and climate legislation certain to consume the rest of the year in Congress, The Times is urging federal regulators to take these steps instead:
First, banks must be barred from automatically enrolling customers in overdraft programs. This must be a service that customers opt in to — and only after they are provided full information about the fees and the penalties they will incur. These disclosure statements must meet the same rules laid out in truth-in-lending laws, since overdraft charges are essentially short-term loans.
Banks must also be required to warn customers in real time when a debit card charge will overdraw their accounts — and what fees they will incur if they still decide to proceed with the purchase.
This will require new technology. But there is almost no chance that the banks will invest in it unless they are legally required to do so.
“Until that happens, buyers beware,” The Times warns. “That cup of coffee may be even more expensive than you realize.”