NYT: banks quietly gorging on debit card overdraft fees. (Now THAT'S how to cover the bank beat!)

tazmania99 said: Ripped from the article: Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.

I think many people here are gladly ignoring that fact while standing strong for the banks. Obviously consumers should know about their overdraft fees, at the same time it is not new and has been discussed in this forum before that many banks sort out the charges in such a way as to increase overdraft fees and penalties. Regular such approach is to have the largest payment go through first and then numerous smaller payments get the overdraft fees. That's a non-obvious way of fleecing customers and I would love to see how it gets defended.

For those that say "go to another bank" and making analogies to McD's, I think we should have them create a list (and make it a sticky) of banks that let you open accounts in under 3 minutes and have a list of all fees posted above the heads of their tellers. Organize that list by regions, so that it can be used by anyone anywhere. And be happy I didn't compare to Taco Bell, or it would be 60 second time limit.

RushnRockt said: tazmania99 said: Ripped from the article: Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.

I think many people here are gladly ignoring that fact while standing strong for the banks. Obviously consumers should know about their overdraft fees, at the same time it is not new and has been discussed in this forum before that many banks sort out the charges in such a way as to increase overdraft fees and penalties. Regular such approach is to have the largest payment go through first and then numerous smaller payments get the overdraft fees. That's a non-obvious way of fleecing customers and I would love to see how it gets defended.

For those that say "go to another bank" and making analogies to McD's, I think we should have them create a list (and make it a sticky) of banks that let you open accounts in under 3 minutes and have a list of all fees posted above the heads of their tellers. Organize that list by regions, so that it can be used by anyone anywhere. And be happy I didn't compare to Taco Bell, or it would be 60 second time limit.

Also, if you don't like McDonalds, or any restaurant for that matter, you can buy your own food at the grocery store and cook it yourself. Can I do my banking by myself at home?

czarandy said: 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.
I guess so. I've read many stories (including the one from OP) that talk about this catching people.
article said: Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.
Alliant CU has told me that they charge NSF fees if you write checks that exceed your available balance, regardless of total balance. I didn't ask about debit cards (because I never use them), but I would expect it to be the same. And that's one of the most customer-friendly financial institutions I've worked with!

RightPatriot said: Can I do my banking by myself at home?

You sure can!

Reots said: RightPatriot said: Can I do my banking by myself at home?

You sure can!

LOL!! Nice one

I'm glad the piece resonated with so many here. A few replies:

PrincipalMember said: Personally, nobody should be using a debit card. I agree that credit cards are generally preferable. However not everyone qualifies for credit cards, and many people find that using debit cards helps with their financial discipline. I do like your brokerage-account-as-OD-protection strategy. For folks with significant taxable security holdings, this is an elegant solution.


kaiotes said: have enough cash in your bank acct and there's no way an OD will occur.Actually no. There are many cases--some highlighted in the piece--when you'd have every reason to believe that there are ample of funds in your account, and yet for various reasons (holds, double-charges, direct deposit snafus, et cetera) these fees are assessed.


gosocks said: The simple truth is that banks should not allow you to debit money from your account if there is not money to debit (or at least have you opt in to do so).Absolutely. There are simply no good arguments against this, and no reason regulators shouldn't require it of banks. It's telling that not even bank spokespeople try to defend the practice of allowing it, other than claiming it's "complicated"--despite the fact that this used to be routine practice before the lure of fee income grew too tempting to pass up.


SUCKISSTAPLES said: To me, beyond the tidbits of note you listed, all that article does is show how stupid most Americans are.I don't understand how claims that people are stupid, that the teacher's purse was too expensive, et cetera refute the thesis of the piece. Of course customer carelessness compounds these problems. Of course having extra buffer money in your bank account helps prevent them. But such observations DO NOT justify the banking practices laid out in the piece, nor the lack of required disclosures for banks that employ them. 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!I agree that a "proposed solutions" piece would be useful. But I don't fault the authors for not doing so here. This was a page one NEWS piece about banking practices (hence my OP title), not a personal finance column with advice on best consumer practices. Indeed, a rhetorical benefit comes from using your allotted space to simply document the severity of a problem that many aren't even aware of. Were THIS article to veer into "how to keep your bank from ODing you", its punch as a news piece would be diluted. Thus those who are looking to apologize for the banks (and they are LEGION) would have an easier time blowing off these revelations. That said, I'd welcome a follow-up column referencing how one might avoid debit-card traps.Nobody is forcing customers to "BUY" ODs.The point is that by not allowing opt-outs, they ARE forcing exposure to OD fee risk to debit card users. Again there is no banking justification for this--it's strictly about jacking up fee income. If you are a customer who teeters on having a 0 or negative balance, debit cards shouldnt be used.So if I can't get a credit card, and I need to purchase something online, or rent a car, I should simply be out of luck unless I'm sufficiently loaded? Why should bank regulators accept this reasoning?

I'm not arguing that credit cards aren't superior for these applications, SIS...clearly we agree that they are. But that doesn't excuse banking practices towards debit card users.


Dazarath said: 45 percent of the nation’s banks and credit unions collect more from overdraft services than they make in profitsStatements like these bother me because the author obviously puts them into the article for the "OMG" factor, yet the statement itself is almost meaningless....Unfortunately, I don't expect journalists to think about the numbers when they're writing these articles and I'm assuming they'll just stick in whatever sounds the best.First, that statistic was given to the authors by an industry economist, not a number they concocted themselves. More important, all sides agree that the OD fees are almost pure profit. Remember, they are literally drawn directly from the customer's bank balance (unlike credit card fees, which have to paid from some funding source). I found that comparison revealing myself. No wonder worried banks are in full propaganda mode over this. ElJayL said: Why should the banks alert the customer at the POS that they don't have enough money?...They understand that they can't spend cash that they don't have, but when it comes to cards people seem to shut off their brains.And that's precisely WHY many customers opt to get a debit card: they believe it will help them avoid "spending cash they don't have". And for awhile, that was exactly how they DID work. This is not an unreasonable belief or desire on the customer's part.

What is the argument (beyond increasing bank profits) for not simply requiring banks to allow customers the option for using their debit cards in this way, unless they "opt in" to OD protection?

DaveHanson said: More important, all sides agree that the OD fees are almost pure profit. Remember, they are literally drawn directly from the customer's bank balance (unlike credit card fees, which have to paid from some funding source). I found that comparison revealing myself. No wonder worried banks are in full propaganda mode over this.

Same with foreign ATM fees. Obviously, it costs a bank something if another bank's customer withdraws money from its ATM, as they have to pay armored car guards to refill the money. But it costs YOUR bank absolutely nothing. There is no business justification for one bank charging its customer a fee when that customer withdraws from another ATM.

These people are educated idiots. Don't they know what they have in their bank account? I don't keep a daily record of my purchases but any day can tell close to a 100 bucks what is in my checking account because my expenses are predictable and unpredicatable ones are more easier to remember. The banks are greedy but they are not there to help people.

The entitlement and non-adaptability of some of these individuals is just amazing though incredibly sad as someone has to pay for this crap. The girl has a freaking BMW convertible and still has overdraft fees because of gas and pizza..tears are just rolling off my eyes

On the other hand I was just wondering the other day why I am seeing all these visa debit card adds with Morgan Freeman's voice in the back ground. This explains it really well. May be we should put a statutory warning on the credit card : Use this at your own risk! you may incur fees if you spend the money you don't have

RightPatriot said: tazzy531 said: RightPatriot said: So in other words, you have no moral problem with anything a bank does, as long as it's technically disclosed. Am I correct?

This is not a moral issue question. A contract is a contract. If you don't like a contract, don't agree to it. Easy as that.

When the debit card uses the debit card, he agrees to terms and conditions. Part of the terms and conditions is that if they go over the limit, they get charged the fee.

So, I don't understand what problem you may have with this.

Because as I said, this is a moral issue. I don't think that everything that is legal is moral. So are you telling me that if I go into Chase, I can negotiate the terms? Or am I handed a boilerplate agreement that I can either take or leave (the classic definition of a contract of adhesion)? Do any of the major banks allow customers to negotiate terms?Try walking into McDonalds and negotiate the price of that cheeseburger..... What part of "The bank sets the terms they are willing to offer, and you either accept those terms or do not open an account with that bank" do you not understand? Why would you expect a bank to negotiate the terms of an account any more than a grocery store would negotiate the price of a gallon of milk? If they wanted to offer a variety of terms, they'll offer a variety of accounts each with their own customized terms.

How in the world is setting terms for your product, then expecting the customers who choose to patronize your business to comply with those terms, have anything to do with morals?

What I find to be immoral is expecting an independant business to bend over backwards and modify their entire business model just to accomodate your own personal shortcomings.


RightPatriot said: Yes, and anyone who claims that there is a choice to accept the terms is a blatant liar. If you want to keep your money in a bank, you don't have a choice.And there's the foundation of the argument - "If you want". I wanna do business with a bank, so damn it that bank better accomodate my best interests regardless of what they want. Keeping money in a bank is in fact a choice, and what you want from the bank isnt any more important than what the bank wants from you. Its a mutual agreement that either of you can terminate at will.

RightPatriot said: Also, if you don't like McDonalds, or any restaurant for that matter, you can buy your own food at the grocery store and cook it yourself. Can I do my banking by myself at home?Um, of course you can. You only choose to use a bank because they offer better terms and more convenience than keeping a wad of cash at home.

RightPatriot said: Why don't you go see if you can con some old lady at the grocery store?Huh? Who said anything about conning anyone? Just because a certain percentage of the population is too dumb to comply with the terms they agreed to doesnt mean the resulting fees are conning them in any way. Its called CONSEQUENCES. If you keep putting your hand in boiling water, is your doctor going to blame the electric company for providing the power to your stove?

RightPatriot said:
Yeah they're so full of garbage it's almost comical. I wish they would just come out and say they do it purely to pad their profits. I'm tired of companies doing things "for our own good."
Apply some logic and common sense to this issue.

Put yourself in the position of the average American. If your large credit card payment bounces because you filled up your car or wrote a check to your book club, then your credit card account will become subject to a default APR. If you are having trouble making ends meet at 14.99%, then 29.99% is probably going to push you over the edge.

The same applies to many store accounts that offer 0% financing. That financing (along with other promotional rates) typically stays in effect only as long as the account is current. A late or returned payment will send you up to the default rate yet again, which on many store accounts, is applied retroactively to the balance since the date of origination.

The same applies to your mortgage payments. The standard late fee on a conventional loan is 5% of the payment. The servicer will also not apply future payments to future due dates until all past due amounts are paid, which could cause you to go 30 days late, thereby hurting your credit.

What about your insurance? How would you like your insurance to lapse because you wrote a check for $20 worth of groceries?

The largest-item-first clearing order does have real value, however, if it is not right for you, then don't overdraw your account.

tazzy531 said:

And that is the mistake. If people aren't expected to read and understand the contracts that they agree to, then the foundation of capitalism and the US is all a sham. As an attorney, you surely can't advocate that it's ok to not understand something that you sign? (Well on the other hand, it's good business for you)

I see a statement I can finally agree with(in bold).

Money=power=more money=more power... Those without power are slaves to the money.

The reason we have to agree to unreasonable (non-fixed) T&C from banks is there is NO alternative. Fees should cover cost+reasonable profit. Punishment is reserved for the law. I can't punish people for violating me, that's the laws job. Businesses shouldn't get that benefit either. If there was a fine that didn't benefit the banks, I would be fine with that.

staci86 said:

The largest-item-first clearing order does have real value, however, if it is not right for you, then don't overdraw your account. The value of largest item clearing holds true if the bank policy is to REJECT the other payments where there is ISF.

Since the banks are now favoring paying ALL your items, and charging you if you OD, the order of clearing doesnt matter from a "who gets paid" perspective. They are ALL getting paid, large and small. Its not like they are denying the small charges bc they processed the big ones first

At the beginning of the article it says, "a deposit from a few days earlier would have covered everything had it not taken days to clear." and one of the comments says, "Chase charged me a $35.00 overdraft fee for a $1.00 purchase at McDonald's while a $5,000 check was on business day #8 to be cleared. It finally cleared on day 10."

How are you supposed to know when the check you deposited clears? I always assumed that it cleared the same day.

that's retarded. i ain't going to do no reading just to prevent the bank from stealing my money

DaveHanson said: I'm glad the piece resonated with so many here. A few replies:

credit cards are generally preferable. However not everyone qualifies for credit cards,

even bank spokespeople try to defend the practice of allowing it, other than claiming it's "complicated"

Of course having extra buffer money in your bank account helps prevent them. But such observations DO NOT justify the banking practices laid out in the piece, nor the lack of required disclosures for banks that employ them.

a rhetorical benefit comes from using your allotted space to simply document the severity of a problem that many aren't even aware of. Were THIS article to veer into "how to keep your bank from ODing you", its punch as a news piece would be diluted.

So if I can't get a credit card, and I need to purchase something online, or rent a car, I should simply be out of luck unless I'm sufficiently loaded?

What is the argument (beyond increasing bank profits) for not simply requiring banks to allow customers the option for using their debit cards in this way, unless they "opt in" to OD protection?

Are you going to have a separate optin for debit OD permission, checking OD permission, automatic monthly payments OD protection, etc?

Because Debit cards are tied into an account (usually a checking account) that does many other types of banking business....ACHs, checks etc. So even if you can stop debit card ODs, you still have checking ODs to contend with. Do you bounce those too , or ask the customer to optin for those too? What about automatic monthly debits? Such as for important things like insurance, mortgages etc? Do you decline those too if the customer has not opted in? Should there just be a blanket optin for all these ODs, or specifically to the debit card OD use? If separate, Are banks going to spend half an hour with each new banking client trying to explain these various optins, the majority of whose eyes will glaze over , not understanding and just say "Yeah give me all of those".

I understand why the BofA rep might say its "complicated" in the situation where the sister is trying to block the mentally disabled brothers card from ODs. If he doesnt really understand whats going on, treating him differently and blocking him access could potentially open BofA to an ADA discrimination suit. Likely to happen? No. But BofA doesnt need the hassle. Has he been declared incompetent? Or is he just "slow" but not to the level of legally incompetent? Whatever it may be, this is a complicated situation.

As far as proper disclosures - The OD fees are disclosed, and how payments are applied is disclosed. If you are talking about effective APRs not being disclosed, thats effectively ridiculous bc theres no way to inform the customer the APR of a $5 coffee OD at the POS or that a $55 gas OD at the pump comes with a different APR. Its an upfront, one time fee. Calculating out into an APR is just for sensationalization. the smaller the purchase that incurs the OD, the bigger any "APR" would appear.

I agree with you that the "punch" of this article would be diluted if Lieber pointed out the many alternatives and ways to never be hit with OD fees. But telling half the story, and making it seem like theres no other option, to punch up your piece does nothing to help 99% of the people reading the column.

And again, there is a simple SOLUTION to these issues - pick a product OTHER than a debit card! We all agree that a credit card is best for RESPONSIBLE people. But You certainly dont need a credit or debit card, or big bank balances, to reserve a hotel or buy something online if you have problems maintaining a sufficient checking balance. The prepaid card is PERFECT for these people, does not require someone to be rich or have good credit, etc. Many banks themselves now offer prepaid cards, so its not like they would be losing business to another outfit...rather they can sell yet another product to expand the customer "relationship".

I am glad there are people who are willing to pay for my free checking accounts with their overdraft fees.

SUCKISSTAPLES, thanks for your reply to staci86 concerning the "pay the biggest first" debit card practices. The interviewer in the video attached to the NYT piece made a similar point, as others have indicated.

As for your reply to me, we seem to agree on most key points. I'm not certain how significant our disagreements are. So to clarify, is your position that banks should continue the debit card/OD practices detailed in the piece?

I understand why the BofA rep might say its "complicated" in the situation where the sister is trying to block the mentally disabled brothers card from ODs.Of course. But what causes these complications, SIS? Ironically, it's precisely the profit-driven "exception basis" of BofA's opt out policy! By contrast, the remedy I support would not only be more customer-friendly, but much simpler. In one line:

Banks shall decline debit card authorizations not be covered by their customer's available funds, unless the customer "opts in" for an adequately disclosed alternative.

That is, debit card overdraft protection must be "default-negative." If customers want debit cards to allow them to "spent beyond their means", they need to ask for it. This remedy is all the more fitting given that many users adopt debit over credit cards precisely because it will help them avoid spending beyond their means!

Are you going to have a separate optin for debit OD permission, checking OD permission, automatic monthly payments OD protectionI think the need for regulation is evident only for debit card transactions. Perhaps a stronger case can be made that all OD protection, across the board, should be on an "opt-in" basis. (That would be simpler for consumers). But I'm not advocating this idea here.

I agree with you that the "punch" of this article would be diluted if Lieber pointed out the many alternatives and ways to never be hit with OD fees. But telling half the story, and making it seem like theres no other option, to punch up your piece does nothing to help 99% of the people reading the column. SIS, they never suggest there's "no other option". They're simply telling the story their editors commissioned them to tell, as opposed to the story "editor SIS" would have them tell. Half of YOUR story is not half of THE story. Again, this ISN'T a "column", where advice and tactical prescriptions are expected and appropriate. It's a news item. It only reporting on banking practices, their causes, and their consequences. Now Lieber's does have a weekly "column" on personal finance with the NYT. He's covered debit card strategies before. Having co-authored this widely disseminated news piece (page one on NYT's hard copy, and currently #1 emailed piece on NYT.com), I'm sure there's more of this to come.

As for alternatives to debit cards, I agree that prepaid cards have their uses. But they come with their own problems (extra fees, lack of immediate availability in an emergency, load limits capping purchase sizes, refusal by certain merchants, and their own set of unique technical glitches, to name a few).

Much more important, the existence of (imperfect) alternatives to debit cards exist doesn't justify current banking practices regarding them.

Tincom said: The reason we have to agree to unreasonable (non-fixed) T&C from banks is there is NO alternative.
Then why isn't there a bank doing this? Everyone would flock to them since the terms are reasonable. They would quickly dominate the market.

kamalktk said: Tincom said: The reason we have to agree to unreasonable (non-fixed) T&C from banks is there is NO alternative.
Then why isn't there a bank doing this? Everyone would flock to them since the terms are reasonable. They would quickly dominate the market.
ING Direct doesn't do this crap, and people do flock to them since the terms are reasonable. They were mentioned in the article, so maybe more people will see the light.

RightPatriot said: Same with foreign ATM fees. Obviously, it costs a bank something if another bank's customer withdraws money from its ATM, as they have to pay armored car guards to refill the money. But it costs YOUR bank absolutely nothing. There is no business justification for one bank charging its customer a fee when that customer withdraws from another ATM.
Not true. Your bank has to pay a per-transaction interchange fee, which varies by network but is typically in the vicinity of $0.50. In addition, your bank pays a fee to be a member of the ATM network you used. While that's a flat, rather than a per-transaction fee, they still try to recoup it from people who actually use the network.