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Fee hikes bounce to debit cards

A chip and pin debit console.

TEXT OF STORY

Kai Ryssdal: There was much fanfare last month when President Obama signed a law to rein in interest-rate charges on credit cards. No more surprise charges or outrageous interest rates, he said. But bank customers may notice the costs of using other plastic are going up. From Washington, Marketplace's John Dimsdale reports banks have started tacking on new fees for customers using debit cards.


JOHN DIMSDALE: Debit-card transactions withdraw money directly from your bank account. Unlike a credit card, debit- card cash isn't borrowed from the bank. Debit-card transactions now outnumber credit-card usage. But Jean Ann Fox at the Consumer Federation of America says the penalties for debit-card overdrafts are going up.

JEAN ANN FOX: Just a few years ago, banks would not permit debit cards purchases to go through if there wasn't sufficient money in your bank account. Now over 80 percent of banks let those transactions go through. So banks are encouraging overdrafts by letting people spend money they don't have so they can turn around and charge them their overdraft fees.

But Nessa Feddis at the American Bankers Association says debit-card overdrafts have become a service for bank customers.

NESSA FEDDIS: In most cases consumers want the transaction paid. They've already eaten the dinner, they've already spent an hour doing the shopping, the cart's filled, kids are crying. They want the transaction to go through. And they're willing to pay something for it.

Most banks charge $35 for overdrafts. And Bank of America just doubled the penalty if it's not paid within five days.

Banks have also been raising fees for foreign-currency transactions and for using another bank's ATM. Greg McBride at the personal finance Web site, Bankrate.com, says the new charges are designed to replace lost profits.

GREG McBRIDE: The tougher restrictions on credit cards that take effect in early 2010, do have the effect of putting credit-card issuers and banks in a position where they're going to have to try to make up revenue in other areas.

The FDIC estimates banks earn nearly $17 billion a year from overdraft charges.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.
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BOA has indeed made it so if you are overdrawn 5days + they charge 35 dollars. My step has been bouncing consistently for 2.5years and so far in that time given BOA over 8k in bounce fees. Stupid right. Just this past Friday she had 7.57 in her account and decided to go to the movies. This made her overdrawn. Then bought goodies at the movies, yet another bounce and then stopped to get a little gas, yet another bounce. This is 3 bounces in 1 day so 35 * 3. Oh but wait...she doesn't get paid til the next Friday. So now we have the 35 fee for being overdrawn more than 5 days. So now her movie cost her 140 + what she paid to see it. Pretty expensive movie huh? She never learns. Her thing is going out with the boyfriend and most of the time she pays. He has no job. Well sort of. He sells things on Ebay for his uncle and gets a commission. Sorry, that doesn't qualify as a job. His parents pay for everything for him otherwise. He is 20 as is she. I asked the bank please can you cut her debit card off when she goes over and they said no. The only way to do this is when the acocunt is overdrawn 60 days in a row. Thus the reason after 2.5yrs her account has never been closed cuz she gets paid every 2 weeks. We put a budget together for her. By the way she lives with her mother 1500 miles from us. She gets everything as for living expenses free. Her only bills are car insurance, cell phone and gas in that car. So by the time all is said and done she has about 500 play money for the month. And she over plays as you can see from all the bouncing. She gets money for gas from her grandma who lives less than a mile away so when she is negative she doesn't continue to pile the fees on. I keep saying quit with the gas money and the bailouts cuz she knows there is a safety net. Let her fall cuz without falling she will never, ever learn to get up. But no one listens to me, I am just the stepmother and was never, ever a kid. So my thing is how to stop this insanity from continuing? Any advice cuz we are all at our whits end.

Not only do the banks not tell you about the "formula" they use to justify this practice, my bank, TD North does allow you to choose to not process the debit card transaction. But that also means they will not allow you to link a savings account to your checking so the account will automatically cover the difference. Either their way or the highway? Also, TD North helps create OD's and subsequently OD charges by using the "high-low" method of taking out the largest transaction which often in turn creates ODs on smaller transactions, including debit cards. I have protested against this practice with my bank to the point that the bank has basically told me to leave.

It is quite possible to be unsympathetic to both the greedy banks and the checking/credit card/debit card users who incur fees because they paid no attention to their account balances. That said, proper regulation should prevent banks from creating quicksand traps for their customers. Calling the debit card trap "a service" is an offensive corruption of language.

At the very least, banks (and similar financial institutions) should be required to issue contracts in plain, simple English. Simplified legalese does not go far enough. Any customer reading at or above a certain reading level (say, 6th grade) should be able to comprehend the terms of the deal. "We will charge you $35 each time you spend more money than you have in the bank. You must remember how much money you have left to spend."

Another thing the banks can do (suggested by Shonna Nance) is offer the customer a clear choice at the cash register: accepting a charge for an overdraft or finding some other way of paying the bill.

I am shocked to hear that Bank of America is now going to be able to charge $70. I am stunned that this practice is considered legal.

I am shocked to hear that Bank of America is now going to be able to charge $70. I am stunned that this practice is considered legal.

I heard your story today, and felt very frustrated by Ms. Feddis's comment. My personal experience with this subject happened when I was searching for a new job and funds in my checking account were low. I mistakenly believed that a transaction wouldn't go through unless funds were sufficient. I was wrong, and over the course of several days I used my debit card 10 times racking up $350 in fees. (Most of my charges were less than the $35 overdraft charge). When I noticed, I immediately discussed with Bank of America and paid the fees. I realize I should have understood the policy better, but I also would like to challenge Ms Feddis's statement. If she believes that most customers would prefer that the transaction go through and be charged a fee, why not test the theory and give customers a choice? When I spoke to customer service at Bank of America I made the request that my card be declined if funds were insufficient. They do not offer that option! That's what bothers me most. Thank you for bringing attention to this topic with your story.

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