Faced with a storm of criticism from lawmakers, several banks have announced that they would eliminate overdraft fees in certain cases and limit the number of overdraft fees that can be incurred in a single day.
Bank customers have long complained about bank charges for services like withdrawals from another bank’s ATM. Especially annoying are charges for overdrafts, particularly since many banks massage debit card transactions to maximize revenue. Rather than processing purchases in the order they are made, for example, a bank may process the largest transaction first, putting the depositor over the amount in the account, which then can trigger multiple overdraft fees on several smaller purchases.
Faced with a storm of criticism from lawmakers in Washington, several banks, including Wells Fargo, Bank of America, and J.P. Morgan Chase, have announced that they would eliminate overdraft fees in certain cases and limit the number of overdraft fees that can be incurred in a single day. The concessions haven’t satisfied lawmakers and several have announced that they would continue to press for laws that would place more stringent restrictions on banks’ fee policies. Banks have a lot to lose; service charges on deposits earned them almost $40 billion last year and revenue from all fees made up 25% of bank revenue.
One of the trends behind the explosion of overdraft fees is the increased use of debit cards. When you use a debit card to make a purchase, the money comes right out of your checking account and you’ll get hit with an overdraft fee if there isn’t enough cash in the account to cover the cost. Be especially careful when you use a debit card to fill up your gas tank. Even if you only buy $20 worth of gas, your bank may block out as much as $75 from your account until the bank gets the actual amount from the service station.
Tip: Make sure you check the balance in your account before you start out on that shopping trip.