Managing Credit: 3 Ways Overdraft Fees Will Still Haunt You

Your guide to building and protecting your credit

Consumers recently scored a major win with the passage of the CARD Act, as the White House finally began clamping down on unsavory practices by financial institutions. Starting Thursday, banks must ask e consumers to “opt-in” for overdraft protection instead of charging the usual exorbitant fees for giving “courtesy” of spending more than what’s in your account. Unfortunately, overdraft fees are not quite merely a daunting specter of our banking past. Check out how banks can still profit off your overdraft mishap.

Banks still offer “protection” for a fee: Since consumers must “opt-in” for overdraft protections financial institutions now offer overdraft protection services for as much as $35 per incident and an additional fee everyday until the account is brought to a positive balance. Some banks are also offering other overdraft services including opening up additional accounts that can be used to transfer money to the overdrawn account. This can cost upwards of $10 per transfer.

According to the Center for Responsible Lending, U.S. Households spend more on overdraft fees than on fresh veggies. Whether financial reform will change that remains to be seen.

You’re not 100% covered: Unfortunately for bank customers, the new opt-in rule is not a total coup since it only covers nonrecurring debit card transactions and ATM withdrawals. What’s not covered? Check payments, recurring debt card transactions, automatic bill payments and online banking bill transactions using your checking account number.

The rules only scratch the surface: Progress is indeed a process, and while this latest piece of consumer legislation does show signs of progress, there are still underline issues that need to be addressed in the banking industry. Financial institutions continue to reorder transactions from the largest to the smallest to generate more overdraft incidents and fees, according to a recent report by the Center for Responsible Lending (CRL). As mentioned previously, institutions are not requited to obtain consumer consent about whether they want overdraft coverage for checks or electronic automated clearinghouse payments (ACH). The heart of the legislation was to curb if not end abusive practices by financial institutions. While the legislation begins to crack the surface, there are still practices that if not changed, will continue to have consumers at their banks’ mercy.

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