Bank Overdraft Fees

Do you use a debit card regularly? Have you experienced multiple unexpected overdraft fees over a weekend or overnight? Check your statements prior to July 2011 – you may have been charged unlawful fees.

What began as a “courtesy” service to save customers the embarrassment of a bounced check became a big money maker for the banking industry – and a rip- off for unsuspecting consumers.

Up until July 2011, when federal laws stopped this practice, many of the nation’s largest banks used a deceptive practice to collect more in overdraft fees from debit card customers than should have ever been collected. These "courtesy" overdraft fees typically ran $20 to $35 each but quickly added up to hundreds, even thousands, of dollars.

Here’s the way this deceptive practice worked: the banks maximized the number of fees by reordering transactions by dollar amount from highest to lowest rather than chronologically. Regardless of the order in which you made your purchases, the bank took the largest transaction amount and deducted it from your bank account first. The bank then took the next largest and deducted it and so forth. The result was higher profits for banks. In fact, overdraft fee revenue reached an all-time high in 2009 of $37.1 billion. In 2011, banks made $29.5 billion from overdraft charges from American customers.

Who is funding this boon to banking profits? Customers who can least afford to pay. According to a banking consultant quoted in USAToday, it’s estimated that consumers who maintain checking account balances in the bottom 10 percent pay approximately 40 percent of the overdraft fees.

What can I do?