Fees for bounced checks draw ire
- Steve Law
- Portland Tribune - News
Banks relying more on overdraft charges
Remember the days when you bounced a check and got dinged with a penalty and your check wasn't honored?
Nowadays banks routinely honor those checks and charge customers 'overdraft protection fees' of $25 to $35. Banks say most customers appreciate the policy change, but critics say the banks - especially the huge national ones- are milking overdraft fees to exploit unsuspecting customers.
Michelle Kohler of Southeast Portland says her husband used an ATM to deposit his paycheck one Friday into his U.S. Bank checking account. After he used his debit card the following Tuesday to make a few purchases, the bank levied multiple overdraft charges because it hadn't yet cleared his paycheck in the intervening four days - even though the paycheck was issued from his employer's account with the same bank.
'It was over $100 in fees,' Kohler says. 'I was really mad.'
At 2 a.m. one morning, Darlene Forsman's westside Portland neighbor arrived home from the hospital and asked for help paying for the cab ride home. Forsman was a Good Samaritan and put the $5 cab fare on her debit card. But her bank wasn't so kind.
Forsman was socked with a $35 overdraft fee, because the bank didn't record the automatic deposit of her monthly $1,000 Social Security disability check until 4 a.m., or two hours later.
When Forsman worked as a bank teller years ago, she was trained to gather all of a customer's deposits and checks for one day, then add the deposits into the account before deducting money for the checks.
That's not how banks do it anymore.
Jacqueline Keeney opened a U.S. Bank checking account to get a deal offering $75 in free groceries. Keeney, laid off in June from her Portland job as a Head Start teacher, figured she would use the account just for groceries.
Before, Keeney was accustomed to sending back items to the grocery shelf when she reached the checkout stand and found her checking account balance was short. But with the overdraft protection in her new account, Keeney was able to make a $46 purchase in mid-August for $7.61 more than her balance.
In September, Keeney learned the bank not only slapped her with a $35 overdraft fee - but also $8 a day for not replenishing her account. By the time she figured it out, the bank said she owed $370.61 for overspending by $7.61.
'I understand they're scrambling, trying to figure out how to make money,' Keeney says of the big banks. 'But even 1920s Chicago-style loan sharks didn't charge that.'
Though overdraft protection programs have been widely used for years, there has been a recent surge of complaints about the fees, says Richard Renken, Oregon's chief banking regulator for the Division of Finance and Corporate Securities.
In the third quarter of 2009, from July through September, Oregonians filed 130 complaints about banks and credit unions to the state Department of Consumer and Business Services. Of those, 113 were about the practices of big national banks, which aren't regulated by the state; 16 were by customers of state-chartered community banks, and one was from a credit union customer, Renken says.
About 60 of the complaints dealt with overdraft protection fees, equal to the number of complaints related to mortgage foreclosures, Renken says.
The Center for Responsible Lending, based in North Carolina, calculates that banks and credit unions charged $23.7 billion for overdraft fees in 2008 - 35 percent more than in 2006. That's twice the amount Americans spent on books and about the same as they spent on fresh fruit, the group points out.
There's several possible explanations for the increased use of overdraft fees:
• More people are using debit cards and ATMs and not consulting checkbook registers that show their account balances.
• People are struggling to get by during the recession, and more prone to come up short of money.
• In Oregon, most payday loan companies closed after 2006 and 2007 state laws restricted their interest rates, so people have less access to emergency cash.
• Banks bruised by the mortgage crisis and recession are devising clever ways to make money.
The Oregon State Public Interest Research Group recently dispatched volunteers to 18 Oregon banks and credit unions to pose as would-be customers. In a new report, OSPIRG says the banks and credit unions routinely place new customers into overdraft protection plans without properly informing them, and that more than half the banks didn't let customers opt out of such programs.
OSPIRG also found that many banks are paying customer checks out of order, paying the big-ticket checks first, which results in more smaller checks bouncing and triggering multiple overdraft fees.
Oregon Bankers Association Chief Executive Linda Navarro says surveys show more than 80 percent of customers prefer the overdraft protection charges over the old practice.
'They're very popular with the consumers, who see the alternative as not having their items paid.'
Before, when someone bounced a check, the bank often charged a $20 to $30 penalty, she says, and the merchant receiving the bounced check charged another penalty.
Overdraft fees 'should serve as a deterrent' not to bounce a check, Navarro says.
'The fees are completely avoidable,' says Tom Unger, Portland spokesman for Wells Fargo. Customers can now send a text message to Wells Fargo to obtain their account balance and get a response back within 10 seconds, Unger says.
Banks on defensive
On Sept. 18, Senate Banking Committee Chairman Chris Dodd, D-Conn., announced a pending bill to regulate bank overdraft fees.
U.S. Bank, Wells Fargo and other large banks responded quickly, announcing changes in their policies.
U.S. Bank's changes were unconnected to the Dodd announcement, as the bank had been re-evaluating its policies for a while, says Teri Charest, company spokeswoman at the Minneapolis headquarters. On Sept. 24, U.S. Bank announced it will stop charging overdraft fees next year when the customer overdraws by less than $10, and it will limit overdraft fees to three per day. U.S. Bank, the nation's sixth-largest bank and the largest in Oregon, also will enable customers to opt out of overdraft plans.
Wells Fargo, which automatically places customers in overdraft programs, announced it will introduce an opt-out provision so customers have a choice, Unger says. The bank also will stop charging overdraft fees when the overdraft is for less than $5, and it agreed to limit overdraft fees to four per day.
The Oregon Bankers Association has some concerns about the Dodd legislation, Navarro says. 'Banks are getting somewhat of a bum rap right now,' she says.
But research by Chicago-area economist Mike Moebs shows that when it comes to overdraft fees, the large national banks seem to charge the most.
Moebs, who conducts surveys and collects data on banks, says the median overdraft fee for the large national banks is $35. The median for smaller community banks is $28, while the median for credit unions is $25, he says.
An issue in the Senate
U.S. Sen. Jeff Merkley, D-Oregon, signed on as a cosponsor of Dodd's Fairness and Accountability in Receiving Overdraft Coverage Act, introduced last week.
Merkley says it's unfair for banks to automatically enroll customers in an overdraft protection plan without their knowledge. Customers should have a choice, he says, and there's no reason the banks can't alert debit card users that there's no money left in their account when they're swiping their card in a machine. That way, Merkley says, someone buying a 75-cent newspaper or candy bar at an airport can decide whether to proceed with the purchase, knowing it will cost $35.
Merkley also says it's 'completely bogus' for banks to pay out the largest checks first, thus triggering more overdraft fees. That doesn't help the customer, he says, because under current practices all those checks are covered by the bank.
Some banks would prefer the Federal Reserve handle regulatory concerns instead of Congress. Merkley disagrees, saying consumer protection is a low priority for the agency that regulates banking.
'It's why we need a Consumer Financial Protection Agency,' he says, referring to an Obama administration initiative facing criticism from the financial services industry.