This is the best article on consumer banking I've seen this year. Authors Lieber and Martin are to be congratulated. More pieces like this will help impede the banking industry's "regulatory capture" that has has rightly disgusted so many of us. I follow this industry pretty closely, and I learned several things from the article. Among other items, this piece includes the following:

1. Debit card OD fees alone now earn banks more than ALL penalty fees from ALL credit card users (WOW).
2. Banks increasingly WILL NOT ALLOW debit card users to turn off OD protection, declining purchases instead.
3. "45 percent of the nation’s banks and credit unions collect more from overdraft services than they make in profits", and thus
4. Ending them could cause "an estimated 1,000 banks and 2,000 credit unions to fold within two years", says one industry economist.
5. The banks' argument that they logistically cannot curb these tactics is roundly disproved by the few who don't.
6. Bank lobbying has kept regulators from requiring disclosure of OD protection as loans, despite its soaring costs.

Some really unforgettable stories too. My favorite is the sister who couldn't get BofA to turn off OD protection to her mentally impaired brother's bank account despite trying for two years. Why? Because, said a BofA spokeswoman, the case was, uh, "complicated." Yeah, right.

Nice to see the mainstream media actually covering the banks critically yet fairly for a change. Refreshing. More please!

(Full disclosure: Ron Lieber is a friend and sometimes colleague of mine. I knew nothing about this piece before reading it just now, and he has no idea I'm touting it.)

Personally, nobody should be using a debit card. I don't see any advantage - you don't get the interest free float, you don't get the same consumer protection as a credit card, and you have to potentially pay the OD fees.

Best - use multiple credit cards with the best rewards and have the FULL monthly payment be automatically be paid from a brokerage margin account [I am not advocating using margin]. The advantage is that even if your FULL payment happens to exceed your current balance, you still don't pay an overdraft fee - you temporarily pay interest at margin rates which are much-much lower than bank credit card rates. When you discover the shortfall, you transfer some money from a bank account to the brokerage. So worst case scenario, you end up paying 8ish% for 5-7 days - very small amount compared to the OD fee. [I do exactly that - I have all my payments - mortgage, multiple credit cards, HOA fees etc. directly being withdrawn from my brokerage account. I have paid $3 to $4 of interest at most a year - but no overdraft fee ever. The only reason I have the few overdrawn cases is that the brokerage accounts have stopped paying interest - so better to keep money at Ally Bank or something like that and sometimes I get too busy to take care of active balance in a timely manner].

CASH, dont leave home without it...

have enough cash in your bank acct and there's no way an OD will occur.
stop buying sh*t w. money u do not possess

Dave your takeaway points #1-4 are the real meat of the article, I found those interesting that so much income is derived from these fees....but the article did nothing to highlight the real problem... people spending money they dont have and/or using a poor financial tool to do so! To me, beyond the tidbits of note you listed, all that article does is show how stupid most Americans are.

The "sob stories" are laughable...I love how the girl in the video with her BMWz3 convertible in SF, carrying a designer purse worth more than my entire outfit, doesnt have enough in the bank to cover a slice of pizza or tank of gas. Pathetic. "Gee, maybe if you kept the $500 in the bank instead of on your feet and in your hand, you wouldnt be bouncing purchases Ms. Diva".

The article highlights the issue, but doesnt offer any practical solutions for those who cant balance their checkbook or be bothered with learning about available balances and hold times, or those with legitimate needs such as the disabled family member... A debit card is NOT the proper product for these people! He might have wanted to give consumers helpful info on how to avoid this entirely, such using prepaid cards with NO OD capability. Or, for those who have basic levels of fiscal responsibility, my 2003 topic

Debit Card vs. Credit Card use - Why you should NOT use a debit card for purchases!

Corndogg said:There is no hope for some. Another reason why I enjoy using credit cards for purchase protection and rebates. However, if you can't keep enough cash in your bank account then you shouldn't be using debit or credit cards. For those who can't find a means to pay 0% interest is it better to pay 30% interst or $35 in fees per transaction? Seriously.

fixed that for ya.

Those people need to use prepaid cards that will not allow OD.

Do you mean to tell me that banks are following the terms and rules associated with banking products that consumers agree to when they sign up for such products? Oh, the humanity! We must do something to stop this travesty of justice.

What will these evil, despicable banks think of next?

biomedeng said:What was it like 20 years ago before debit cards existed? Did these types of people who overdraft their debit card just bounce checks left and right? Or were people more responsible back then?

No, people were not more responsible. This is an interesting point, though -- writing a hot check is a crime. The bank assesses very high fees for hot checks, and the check recipient can turn the check over to the local authorities, who will issue an arrest warrant for you if you cannot immediately cover it.

ThePessimist said:
Many people get caught on debit cards because they make a deposit, and then make purchases while there is still a hold on their funds. With checks, if you made a deposit and then wrote checks the same day, there was a good chance your deposit would clear before your checks did.

In my experience (at least the places I've banked) deposits will prevent you from getting OD fees, even if there is a hold on them. Perhaps that varies from bank to bank.

There have always been stupid lazy people, and they have historically been taken advatage of by scam artists. What I find most disturbing is point #3 and #4 of OPs post. It used to be that Banks made money from the investment in the most productive and responsible members of society by issuing personal and business loans that resulted in the economic growth of a community. Now Banks skim profits off the mistakes of the lower income and less productive. Doesn't that say something about the ethics of the banking industry as a whole and the sustainability of their business strategy?