The financial institutions are going to meet their deserved fate all the rest of this year, as President Obama’s consumer-friendly laws begin to put the screws in on all the financial service providers in our lives. But why did Bank of America give in and give in voluntarily in a profitable areas as a way of taking money out of your account via overdraft fees. The bank recently announced that it was eliminating it. At one time, if you didn’t have enough money in your bank checking account and you used your debit card shopping, and you didn’t have enough cash in your bank checking account, they would let you purchase it anyway, and then charge you punishing overdraft fees.
Now, if you try to buy an item without enough money in your account, you’ll just be turned down, that’s all. This must not be good news for the Bank of America since it gets 60% of all their overdraft fees came out of debit cards. And that bank is the nation’s biggest debit card issuer. This is going to cost them millions of dollars off its bottom line, and will eat into other banks profits as well.
You can still have an overdraft facility on your bank checking account if you choose; but it will be opt-in. If you happen to be at an ATM or a store checkout, and you’re being billed for more than you have, the machine will tell you that you can proceed, but at penalty of $35 in overdraft fees. For a fee, one can have overdraft protection for your bills or checks. Banks charge $35 dollars and more for penalty fees, if you went over even two dollars more than you had.
This is excellent business for banks – if they put out money on a formal loan, they wouldn’t make $35 off $2, now would they? 25 billion in overdraft fees was billed by the banks last year for overdrafts. This new practice is certainly going to hit them hard when it comes into effect on July 1. Banks are asking people to opt in for overdraft services nowadays and a means to get their extra charges.
So are they really such villains at the banks? We want to give you the story. Some time ago I worked for a bank and felt bad because of the practices the bank foisted on its customers that I had to go along with. For instance, let’s say that a customer has $100 in her bank checking account. She first uses her debit card to spend $10 at Burger King, she then spends $50 to pay her cell phone bill, and then she spends $102 on gas for her car. That means that with the first two purchases, she was completely within her limits, and she should be charged a penalty only for the last purchase. What they’ll do at the bank though, is, they will charge her the $102 for gas first, so that it wipes out her account, they’ll charge her penalty for it, and then they’ll record the other two smaller expenses. That way, they get to charge for $35 penalties three times instead of just once, if they did it the right way.
Banks tell us they have been pushed to extremes as an excuse to institute these practices. Banks have been made to comply over the years to consumer protection laws hurting their bottom line. They say they’ve been regulated and taxed big time for decades, and they have no choice but to do what they can to work their way back into profitability.
Another great source of fees for banks is the extra markups on personal checks given when customers order designer checks. Banks actually markup these checks by 50% or even more since they purchase them from a 3rd party source. By ordering direct and using designer checks coupon one can save even more plus one gets a larger choice of motifs and scenes.
As such, these practices are unfair; but they say that most of their rules are only to apply to people who overdraw. The simple way to avoid most of their unfair practices, they argue, is to simply live within your means.