Remember the way banks used to slap debit-card users with outrageous bounce fees if you happened to operate too close to the edge? It was so crazy, a six-dollar burger could end up costing $45 or more if all you had in your account was $5.99. What irked millions of people across the country was the way banks allowed those debit overdrafts in the first place. Most people said they would rather have the transaction denied than have the purchase covered with the bank’s money as a short-term loan, and then get clobbered with exorbitant overdraft fees and penalties.
In 2010, a new federal law required banks to get customers’ written permission before covering debit-transaction overdrafts and the high penalties and fees that go with them. Without it, banks would have no choice but to deny that burger purchase or whatever else a customer tried to buy with a debit card if the amount exceeded the available balance in the account. With the stroke of a pen, banks were out of more than $24 million each year in overdraft fees. As you can imagine, this did not sit well with them. They became exceedingly creative in finding new loopholes, new ways to recover all that lost revenue.
Banks got very sneaky about how they manipulated customers into “opting in” for overdraft protection. They created consumer confusion. In a recent survey by the Pew Charitable Trust, over one-third of those surveyed were unaware that their bank even offered overdraft coverage until they incurred a penalty for having used the service. And there’s a weird loophole in the law, too. It only requires that banks get written opt-in approval for transactions where a customer takes money from an ATM machine and day-to-day, debit-card transactions. If you write a check and overdraft your account, that is not covered by the law requiring written opt-in permission. I’m confused just writing about it. All kinds of people in the survey believed if they didn’t do anything when presented with the opt-in form, their bank would charge them huge fees if they were to unknowingly commit a debit-overdraft. They signed the forms so the bank could not charge them.
Bottom line, and this is what most people do not understand: The law does not forbid banks from charging unlimited overdraft fees on debit-card transactions. It simply requires the issuing bank to get the customer’s permission to do it. And it appears that banks stop at nothing to get customers to agree, even if that requires them to confuse, manipulate and deceive.
I personally would not own a debit card. However, if you insist on keeping your card, please call right now to find out if you opted in for overdraft protection. If you did, please cancel it.