The Perfidy of Banks, Part 3

Oh, the perfidy of banks knows no bounds! I just heard a report on Marketplace about banking "courtesy overdraft" fees which featured an interview with Eric Halperin of the Center for Responsible Lending. The Center has released a report on overdraft loans called "Debit Card Danger" which occur when a person uses a debit card to withdraw funds when they have insufficient funds in their account. Previously, those kinds of transactions would be denied, but now banks allow the transaction to go through, and then charge "courtesy overdraft" fees to the customer which can amount to as much as 4 billion dollars a year. Here's an excerpt from the transcript of the interview of Halperin by host Bob Moon:

MOON: So how much have these overdraft fees gone up?

HALPERIN: Well overdraft fees are currently at a record high. They're at over $27 and they've gone up over 26 percent since 1998. Our study found that nearly half of all overdrafts are from debit card point-of-sale transactions or ATM transactions. And at that point yes, the bank knows you don't have the money in your account and they approve it anyway.

MOON: Is this something consumers actually want? Going ahead and buying, say, a $5 burger and fries and in the end having it cost maybe $40?

HALPERIN: No, in fact we asked consumers that very question: 'If you were standing in a checkout line, would you rather have your transaction denied or would you rather have it accepted and pay an overdraft fee?' And over 60 percent of consumers said they would rather have that transaction denied. And then we also asked, 'if you were given a warning at your ATM machine that you were going to overdraft would you pay the fee or would you cancel the transaction?' and only 2 percent of consumers said they would go ahead and pay the fee.

MOON: Well didn't these banks have their computers set up to automatically reject these purchases in the past?

HALPERIN: Well exactly. In the past the way banks did it is if you didn't have the money in your account, they denied your debit card purchase or your ATM withdrawal. And now they've changed it.

MOON: Any idea how much this all adds up to for the banks?

HALPERIN: Well every year in overdraft fees from ATM and point-of-sale transactions alone, that number is well over $4 billion.

Thanks for the "courtesy," banks!