“Paper or plastic?” is the question asked at stores across the country. Now, however, that query probes more than a customer’s preference in shopping bags.
With the holiday season fast approaching, shoppers are using debit cards over cash more and more, often resulting in overdraft or insufficient funds charges. Even with recently proposed legislation that attempts to safeguard debit card users, there are still many reasons to think twice before reaching for one’s plastic.
Bank teller Alex Martinez deals with such charges on a daily basis.
“When a customer overdraws their account ... [he or she] will get charged an overdraft fee,” said Martinez, who works at Citizens Bank of Edmond.
The problem the legislation is trying to address is whether bank customers have a say in the ability of financial institutions to allow continuous overdraft fees to accumulate or simply decline their card.
H.R. 3904, also known as the Overdraft Protection Act of 2009, is meant to protect consumers by limiting abusive and misleading overdraft coverage fees and by providing meaningful disclosures and consumer choice in connection with overdraft coverage fees.
One of the biggest complaints and reasons for the resolution is that banks are not transparent in their overdraft practices.
“There are times when customers are angry about a bank-related fee, but it is usually only because they were unaware that the fee existed,” Martinez said.
The proposal will give consumers the option to decline overdraft protection, which banks have previously automatically added to accounts.
According to Govtrack.us, a site promoting government transparency, abusive and misleading practices in connection with overdraft coverage fees have deprived consumers of meaningful choices about their accounts and placed significant financial burdens on low- and moderate-income consumers.
Ben Paston, public relations junior, said he would take advantage of such an option.
“I would definitely opt out if I could, anything to save me money,” Paston said.
However, the legislation will not eliminate the reasons for overdraft fees in the first place.
“The problem with debit cards is that you go out and purchase a $50 item and you have $150 in your account, so the operating system freezes your account for that $50 purchase, but that purchase doesn’t necessarily come in and post to your account for two or three days,” said Gaylynn Smith, vice president and chief financial officer of OU Federal Credit Union.
This is often when customers incur costly fees.
“Therefore, you’re out, you check your account and see that you have $150, so you use that money,” Smith said. “Now when the $50 debit card transaction comes in, it can’t be returned as insufficient — it has to be paid — so that’s where the fee comes in.”
Paston said he believes this is dishonest on the part of financial institutions in order to make a profit.
“It seems like they find a sneaky way to get their overdraft fees, like I will transfer money to cover something, and they will say it didn’t transfer and charge me,” Paston said.
Although upset customers may sometimes feel that charges are the fault of their financial institution, Smith explained that in the end, it is the responsibility of the account holder to be aware of their own finances, and not rely on the often inaccurate temporary balance that an ATM or computer screen may show.
“Overdraft fees are a result of someone not tracking the amount of money that they have, therefore, I feel that overdraft fees can always be accounted for,” Smith said. “You have to know how much money you have.”
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mc19 2 years, 5 months ago
"Paston said he believes this is dishonest on the part of financial institutions in order to make a profit."
The time it takes for a debit card purchase to charge your bank account has nothing to do with the bank. The charging system that the company you bought something from controls how long it takes for the charge to go through your account. As a former teller, I would encounter several customers in a day that were angry about their overdraft fees. It's not the banks fault that you can't keep track of your money. This problem could be avoided if people just paid attention.
Also, opting out of overdraft may not be the best idea. You might find yourself in an emergency (like having to buy a new tire after getting a flat on a road trip) where you don't have enough money in your account, but you have to overdraft it just to be able to get by. But, it should be used as a last resort.
Overdrafts are like mini loans. The bank pays for something for you, and you pay them back + interest. Granted, some overdraft fees are a exorbitant, but they're how the bank makes a profit, which you benefit from if you have an interest bearing savings account.