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photo credit: squidpants
Starting July 1, banks won’t be able to charge bounce fees on ATM or debit card transactions unless the customer has opted in to an overdraft service, the Federal Reserve announced today.
Bounce fees have become a real plague on the U.S. bank patrons, as banks quietly replaced true overdraft protection with “courtesy overdraft” or “bounce protection” services that patrons didn’t ask for–but that generate far more fee income. A single lapse can rack up multiple $35 fees, and many banks re-order transactions to maximize the chances transactions will bounce.
The Fed move is good, but isn’t enough, because:
- It doesn’t cover check or recurring-debit transactions
- It doesn’t cap the amount or number of fees that can be charged
- It doesn’t prevent banks from manipulating how they process transactions to increase fee income
Bills that would put such restrictions on banks have been introduced by Christopher Dodd in the Senate and Carolyn Maloney in the House of Representatives.
For more, read:
photo credit: kattebelletje
My buddies on Twitter help me find a lot of great money-related blogs and articles, and today was no exception. Here are three you shouldn’t miss:
How the banking industry wants you to think about overdraft fees. Chris Walters at The Consumerist does a brilliant job of dissecting a particularly absurd press release defending the banking industry’s indefensible overdraft practices.
iPhone data roaming switch is problematic. Yes, the headline seems designed to put you to sleep, but here’s the real story: If you travel out of the country, you could inadvertently rack up hundreds of dollars in fees from your carrier because of a hidden setting in your iPhone or Blackberry. I checked, and mine was switched “on,” even though iPhone insists the default setting is “off.”
Guaranteed income, but at what cost? This posted a week ago, but I just saw it thanks to FMF’s Personal Finance Roundup on Consumerist. Money Magazine’s Walter Updegrave does an excellent job summarizing the risks and rewards of today’s variable annuities.
Dear Liz: Like many Americans, I often must scramble to make ends meet between paychecks. I vigilantly monitor my account online, and when my balance is getting low, I curb my expenses as best I can.
Recently, I have had an overdraft experience that leaves me wondering about ethics and legalities. It was three days from payday and I had about $45 in my account.
I made four purchases under $10. Then a $54 automatic payment came through that I could not reschedule. One would think I would then be charged one overdraft fee, as all of the previous purchases made were within my available funds at the time.
I logged in today to find that the bank cleared the largest transaction first, which threw all other small transactions into overdraft. I was charged five overdraft fees because of this rearrangement of clearance order. I talked to a customer service manager who said that nothing could be done.
Essentially, it appears that the bank is manipulating transactions to capitalize on overdraft fees. This strikes me as unethical, and I wonder if I have any rights in this situation? Aside from getting a better job and making more money, what can I do to protect myself?
Answer: Of course the bank is manipulating your transactions to increase its fees. Most banks do. Lawmakers and regulators have questioned the practice, but so far it’s not illegal.
What you can do to protect yourself is to stop living paycheck to paycheck. That may sound like a flip answer when you’re on the financial edge, but you’ll never get ahead as long as a $54 overdraft can throw your finances into chaos.
Having just a $500 cushion in the bank can reduce not just bounced-check fees but also worry, sleeplessness and lost productivity at work, according to a savings review by Stephen Brobeck, executive director of the Consumer Federation of America.
How do you get a cushion? Try a “no spending” month. Limit your purchases to true essentials. Eat out of your cupboards instead of at restaurants. Entertain yourself at home or at the library. Most people can raise at least a couple hundred dollars this way, which you could supplement by having a yard sale and selling unneeded items online.
If you want more ideas, there are a wealth of frugal-living websites; start with one of the oldest, the Dollar Stretcher, at www.stretcher.com.
You also need to limit the bank’s ability to swamp you with “gotcha” fees.
First, sign up for true overdraft protection. Banks often automatically enroll you in an inferior substitute, called “bounce protection” or “courtesy overdraft.” These programs allow the banks to approve over-limit transactions and charge you $30 or more for each one.
True overdraft, by contrast, links your checking account to another of your own accounts: typically a savings account, line of credit or credit card. If your transaction exceeds your balance, the money is drawn from one of these accounts. You’ll pay an annual fee of around $50 and possibly a $10 per transaction fee, but the costs for making a mistake will be substantially lower than under bounce protection.
If the bank won’t approve you for true overdraft, ask it to stop approving over-limit transactions. If it won’t, take your business elsewhere.
