Rick Vaughn, Categories: Overdraft loans also called “overdraft protection” by the banks who make them to their customers. Consumer advocates call them “bounce” or “overdraft” loans. They are marketed by some banks to their customers who “run short on cash between paydays.”Banks make short-term overdraft loans only to their customers—those who have bank accounts at their institution and of course at a fee.
The last few years, banks have charged their way of operating when covering overdrawn checks or ATM withdrawals. Back in the day, banks might have covered a check when your account contained not enough funds. Banks would be very choosy in these circumstances and might charge a fee depending on the customer’s history. Banks usually did not honor overdrafts at ATM’s until recently.
What are the abuses?
- Automatic enrollment: Banks may enroll their customers in overdraft “protection” programs without asking permission. This puts you in the position of having to personally go to the bank and cancel. Overdraft loans are often a total surprise. Often consumers assume that if their check clears of they are able to withdraw money from an ATM, they must have sufficient funds in their account. You may not find out otherwise until much later, by which time the bank has charged you a lot of fees.
- Pretending it’s not a loan: Banks obscure the fact that this is a loan by calling the practice “overdraft protection.” You don’t think about this practice the same way when it’s called by the wrong name, but don’t be fooled: overdraft protection is really just a very expensive loan.
- No ability to repay: Banks do not assess the consumer’s ability to repay these loans. So, if you overdraw your account, the bank will take its fee from the next deposit into your account, even if you needed that money to pay rent.
- High fees and interest rates: If you calculate the overdraft fee as annual interest, the rates can range from 100% to 3000%, depending on the amount of the overdraft, the amount of the fee, and the length of time until it is repaid.
The TRUTH is Overdraft loans cost consumers well over $10 billion each year. A small number of consumers is paying the majority of fees. Sixteen percent (16%) of overdraft loan users account for 71% of overdraft loan fees.
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2 Comments until now.
Great Post!
Overdraft fees do hurt people. And the number is close to $18,000,000,000 per year paid by the poorest among us.
On top of that, the banks manipulate the payment system to increase the frequency and number of overdrafts people incur.
Take our survey if you get a chance… http://www.odnsf.com
I did this for the first time in my life,for 1000 dollars,and Im on disability,and they know how much I get a month,she said they would waive the first check fee of 30 dollars,it was for 100 dollars,NOw Im worried that the time limit on paying back this,is too short,from what Im reading–30 to 90 days,just wont do it,I need 6 months. I am worried I should never ave done this.,I needed to repair my car,and didnt have the funds.
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