The Real Cost of Overdraft Fees
Published on Oct. 7th, 2020 in the American Banker by Laura Alix
This article discusses the real costs to consumers from bank overdraft fees. Overdraft fees exceed 1,000% APR. This is a lightly edited transcript from the Bankshot podcast.
The fees have helped banks recoup costs of free or low-cost checking accounts for decades, but they can penalize low-income sutomers and drive them away from banking is there a better way?
Below is a lightly edited transcript of the episode:
ROMAN: So at the time, I wouldn’t say I was, you know, low low income. I can share what I was making, it was like, $45,000 at the time. I mean, I lived in New York, which put me above my means. And, sure, that was a decision that I kind of made. But at the same time, you know, that amount of money was enough to pay my food, my bills and everything else that I needed to do. There was just some sort of overlaps that occasionally, you know, I wasn’t saving anything, but I was able to survive.
LAURA ALIX: This is my friend Roman, and he’s telling me about his experience with overdraft fees.
ROMAN: And I bounced, I believe, two rent checks. And then I got an additional overdraft fee. And the bounce was because the time that it took for my paycheck to deposit, versus the time that it took for the check to clear was different. I was with, I believe, Bank of America at the time.
ALIX: Did you try to get that reversed?
ROMAN: I reached out to Bank of America, it was a very long process. They did not reverse it, claiming it was not their fault.
ALIX: Okay. Okay, so it really wasn’t anything, it kind of was just a timing issue. It wasn’t you writing checks you can’t cash?
ROMAN: Yes, it was a timing issue. However, I mean, I didn’t have any money in the bank account. When I wrote the check, I just was banking on the deposit coming in the next day, which it was supposed to, and clearing before the check was cleared. And that timing didn’t occur.
ALIX: Roman’s story isn’t super unique — in fact, you can read thousands of stories just like his in the Consumer Financial Protection Bureau’s consumer complaint database, all of them complaining about the subject of this episode: bank overdraft fees.
You almost certainly know what a bank overdraft fee is — maybe you’ve maybe even gotten a few yourself (this is a judgment-free zone). But the way overdrafts work is this: let’s say you swipe your debit card for $60 worth of groceries, but there’s only $50 in your account. When that happens, the bank covers the payment you made, making your account balance -$10.
But the bank will also hit you with an extra fee fore that service – typically around $35.00 – making your new balance $45.00.
Listen to the podcast or read the full article by clicking here.