Special Internet Edition 12-18-2007
Updated 12-30-2007 and 1-6-2008 and 6-15-2008
Figuring out bank overdraft fees
By Janine Kearney
Daily Sparks Tribune 12-15-2007
Life was easier. And less expensive. That was until the debit card found a place in Janie Boykins-Raschillas wallet.
The 50-something divorcee from Reno was learning to manage her own finances and was "doing just fine" until her daughter recommended she get a debit card in October. Now Boykins-Raschilla, who depends on her Social Security Disability check to scrape by each month is facing nearly $600 in overdraft fees within the course of just a few months.
Janie Boykins-Raschilla reviews banking documents. (Photo: Debra Reid/Daily Sparks Tribune)
"Unfortunately, the people who can least afford these fees are the ones most likely to get hit with them," said Don Taylor of the Ask Dr. Don column at Bankrate.com.
It all started with a charge that led to exceeding her U.S. Bank checking account balance by 34 cents. Boykins-Raschilla said she regularly checks her account balance online, and saw an $89 "credit" that she assumed was a deposit received from her daughter.
The next day, she made four debit purchases, assuming she had sufficient money in the bank to cover her expenses.
In reality, the $89 was not a deposit, but the bank had credited an $89 charge made to the account, while also charging her an overdraft fee. Her additional debit purchases each racked up overdraft fees, until a small miscalculation and misunderstanding grew into a $600 bill that could eat up her entire monthly disability check.
"I was scared to death that I wouldn't be able to pay any of my bills," Boykins-Raschilla said.
The account was closed and Boykins-Raschilla is left wondering how she will pay the fees.
Her bank charged her $37 for each overdraft fee, plus $7 for every day that the account reflected a negative balance which is within the realm of customary fees charged by many major banks.
In 2006, financial institutions earned $53 billion in overdraft fees, a 58-percent increase from 2001, according to financial consultant Moebs Services. A combination of changing bank policies and careless spending by consumers could be to blame.
A few years ago, many banks charged fees for bounced checks, but debit card purchases and ATM withdrawals that would overdraw a bank account were rejected, according to the Center for Responsible Lending. Then two trends led to many banks' increased reliance on fees for profits.
Spending habits changed, with debit cards almost entirely replacing check payments and the system used by banks borrowing money at short-term rates and lending it at higher rates was upended. Long-term yields fell below short-term yields, leading to a serious hit to bank profits, according to a USA Today report on Jan. 24, 2007.
In addition, eight of the 10 largest banks in the United States "typically pay checks that arrive on the same day from the largest to smallest dollar amount," according to the USA Today article. Banks that follow this practice, including Bank of America, U.S. Bank, Wells Fargo, Citigroup, Chase, Wachovia, HSBV and SunTrust, defend the policy, saying a bounced check for rent or a mortgage could lead to more dire circumstances for customers than charging overdraft fees for several smaller purchases.
"The order in which banks process checks and other debits determines the overdraft fees they charge," according to Moebs Services. "Those fees make up 90 percent of service charges on deposit accounts."
A class-action lawsuit in 2004 challenged bank overdraft fee policies and how they affected fixed-income seniors receiving Social Security benefits. A judge and jury in California ordered Bank of America Corp. to pay 1.3 million affected seniors a total of $1.5 billion.
The judgment called for a payment of $296 million in damages to these customers, in addition to $1,000 in damages to each one who could prove the bank's actions caused substantial emotional or economic harm.
Bank of America collected check overdraft fees by taking money from direct deposit accounts set up by seniors who received Social Security benefits. A jury found that the bank's actions violated California banking laws.
The case was appealed, and in November 2006, the Ninth Circuit Court of Appeals in San Francisco overturned the $1.5 billion judgment, saying the bank did not breach state banking laws affecting seniors. The appeals court ruled that it was not illegal for a bank to apply Social Security benefits and other public benefit payments directly deposited to its customers' checking accounts to cover debits for overdrafts and overdraft fees.
Taylor recommends talking to your bank first when you are charged an overdraft fee.
"Talking to your banker about getting some of these charges waived is the best approach to minimizing the financial hit after it's happened," Taylor said, "but the real winning strategy is to know the available balance in your account, less any pending transactions, and to keep your account balance in the black."
Tim Johnston, president and CEO of the Northern Nevada Better Business Bureau, said consumers can file complaints, but banking complaints are typically sent to BBBs in the state of the bank's base of operations.
"Banks will typically refer customers to their policy agreements," Johnston said. "Sometimes, it's difficult for consumers to understand the whole deposit timeline. Banks typically have a 24-hour waiting period before deposited money is available (for withdrawal)."
Beyond the pain of paying overdraft fees, consumers will also find that a history of repeated overdraft charges creates a red flag on their banking credit history, Taylor said.
"The stakes are higher than what you paid in fees," Taylor said. "Banks monitor your banking history just like credit card companies monitor your credit history."
"I suggest you pull the free copy of your ChexSystems report you're entitled to once each year to see if your overdrafts were reported. If so, they'll stay on that report for five years."
As holiday spending runs rampant, consumers can follow a few simple tips by the Federal Reserve Board's Web site to steer clear of overdraft fees.
o Keep track of how much money you have in your checking account by
keeping your account register up to date. Record all checks when you write them and other transactions when you make them. And dont forget to subtract any fees.
o Pay special attention to your electronic transactions. Record your ATM withdrawals and fees, debit card purchases and online payments.
o Dont forget about automatic bill payments you may have set up for utilities, insurance or loan payments.
o Keep an eye on your account balance. Remember that some checks and automatic payments may not have cleared yet.
o Review your account statements each month. Between statements, you can find out which payments have cleared and check your balance by calling your bank or by checking online or at an ATM. Be sure to find out the actual amount in your account; your account balance not including any funds available to you through "courtesy overdraft protection" or "bounce coverage" plans.
o Sometimes mistakes happen. If you do overdraw your account, deposit money into the account as soon as possible to cover the overdraft amount plus any fees and daily charges from your bank. Depositing money into your account can help you avoid additional overdrafts and fees.
Copyright © 2007 Sparks Tribune
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