Bank Overdraft Fees
The banking system has developed an innovative—but abusive—way of raising revenue from consumer checking accounts: the “courtesy” overdraft. If you write a check or make a debit card purchase without having sufficient funds in your account, the bank may cover the purchase for you and then charge you a fee for the service. It seems like a nice service for customers who miscalculate a balance—avoid the embarrassment, credit scars and other problems associated with having inadvertently written a bad check.
But what may have started as a service for customers has become a major money maker for the banking industry, which uses specific techniques to maximize the fees it can charge for overdrafts. According to a recent news story, banks are expected to “earn” $38.5 billion from overdraft fees in 2009.
Each of the ten largest banks in the country provides these “courtesy” overdrafts and charges hefty fees for them. The Federal Reserve is investigating the use of overdraft fees and the manipulative practices implemented by some banks to maximize those fees. Senate Banking Committee Chairman Chris Dodd has said that he will pursue a legislative remedy if the Federal Reserve is unable to stop the abusive practices. And Rep. Carolyn Maloney of New York has already sponsored legislation that would require banks to obtain consumers’ informed consent before covering overdrafts and charging fees.
Banks certainly don’t want things to change, though. Without the billions they charge in overdraft fees, close to half of banks and credit unions would not have made money in 2008. If it’s the means to turn a profit, the banking industry won’t willingly give up the practice no matter how unfair it is to consumers. Wachovia officials, for example, have reportedly called collection of overdraft fees a “responsibility to shareholders.”
There’s no question that the increase in overdraft fees is a deliberate money-making strategy on the part of the banking industry. Some banks pay consulting firms to help them maximize the amount they recover in overdraft fees, and these consulting firms have actually been sued when their recommendations fail to increase revenue from overdraft fees as much as expected. Other banks use their own internal “revenue optimization” teams.
Who is funding this boon to banking profits? Customers who can least afford to pay. According to USA Today, a banking consultant estimated that consumers with checking account balances in the bottom 10 percent pay approximately 40 percent of the overdraft fees.
WHAT BARON & BUDD IS DOING TO HELP
Baron & Budd is investigating and pursuing consumer claims in federal court. Currently, class action complaints have been filed against Bank of America and Wachovia Bank. We continue to investigate claims involving other banking institutions.
NEXT STEPS
If you have bank statements reflecting these charges, call Baron & Budd at 800- 254-0781 or email us at bankoverdraft@baronbudd.com. We will review your bank statements, particularly those reflecting overdraft fees charged over weekends or bank holidays, and advise you on your legal rights.
