Galen Wolffit (wolffit) wrote,
Galen Wolffit

Weekly Dose of Dialogue: Overdraft fees

I'd like to start doing a semi-regular open discussion on topics I find interesting when reading online news. Some of these topics may be contentious and strongly emotional, though I hope to avoid those topics as much as possible. Today's topic, I think, won't be one of those.

Congress is riled up - Overdraft fees on

How do you feel about overdraft fees? Have you been hit by these fees in the past? Was it 'fair' (e.g. you legitimately over-spent your account) or 'unfair' (e.g. bank processed a debit before a credit, even though the credit should have been processed first)? Are the fees reasonable? Is the IDEA of an overdraft fee reasonable?

Here's my thoughts.

Bank customers should not automatically be signed up for overdraft protection - any more than they should automatically be signed up for a credit card. Overdraft protection is a form of credit, and carries with it an obligation for repayment. A consumer should always enter that obligation knowingly and willingly.

When a bank customer signs up for overdraft protection, the fees should be disclosed clearly and completely, in advance. The customer then enters into the arrangement with full knowledge of what the expense will be, and can choose whether or not to incur that expense. If a bank wants to charge its customers $100 per overdraft transaction, that's fine with me, because they are under no obligation to provide that service at all, nor is a customer under any obligation to avail themselves of it.

However, I think overdraft fees should be based on the amount of the overdraft. It is certainly usurious to charge $100 (or $35 to use a more realistic example) for a $1 overdraft - 3500% interest? No thanks! Perhaps banks should instead charge a percentage (potentially with a minimum interest charge), as credit card companies do. In fact, if you have a credit card issued by the same bank as the account that goes into overdraft, they could even 'automatically' transfer the overdraft amount onto your credit card as a cash advance (if you sign up for that service.)

When processing transactions, banks should at the very least process them in the order they are made. If you deposit a large check that takes a few days to clear, and in the meantime draw on those funds in an amount that, prior to the check clearing, would cause an overdraft, the bank should refund that overdraft charge once the check clears - but keep the charge if the check fails to clear. A 'kinder' bank could even go so far as to process transactions in the order most favorable to the customer - for example, process all credits on a given day before processing any debits for that day, or process debits from smallest to largest to reduce the number of overdraft transactions even though the total dollar amount remains the same. Of course, if the overdraft fee is a percentage rather than a fixed amount, the number of transactions doesn't really matter anymore.

I've only had an overdraft fee once - and it was totally my fault.

What are your thoughts? What's your story?
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