ATM & Debit Overdraft Fees Raked In $17.5 Billion for Banks and Credit Unions

Implications: Implications: Banks and credit unions are once again answering questions before the House Committee on Financial Services and this time the questions raised are over banks and credit unions policies on overdraft fees for ATM & debit transactions, which netted a stream of fee revenue to the tune of $17.5 billion in 2006 for banks and credit unions. Debit card transactions at the POS (Point-of-Sale) and ATM trigger over 43% of overdrafts, while paper checks trigger 27% of overdrafts and banks and credit unions are charging fees for each overdraft occurrence and raking in huge fee revenue at the same time. As recent as 2004, 80% of banks would decline debit and ATM transactions without charging a fee when a consumer didn't have sufficient funds in their account, however, this trend has shifted and banks and credit unions now charge an overdraft fee to generate fee revenue when consumers overdraw their accounts when conducting ATM and debit transactions. 

Analysis: Comments/Perspective:

Consumer rights groups and House representatives called banks and credit unions to task on 7.11.07 during the House Committee on Financial Services Hearing, to determine if banks and credit unions are unfairly staking the deck against consumers with abusive overdraft practices when it comes to their policies on processing ATM & debit transactions. In the past, banks would not cover ATM & debit transactions unless the customer had overdraft protection or a line of credit linked to their account, however, today its customary for banks to pay for ATM & debit transactions that would cause an overdraft on the account and in turn, banks and credit unions penalize the consumer for each overdraft transaction, which could pile up over time and as a result banks and credit unions have raked in huge fee revenue.

1.  Banks and credit unions increase their fee income by implementing overdraft loan programs and practices that may be unfair to consumers, such as holding deposits, manipulating the order in which they clear checks and debits or failing to alert account holders before they overdraw their account

2.  Banks and credit unions routinely process the largest check or debit transaction first and may hold deposits for as long as 11 days, which may unfairly stack the deck against the consumer when they make ATM and debit transactions, would could result in overdrafts and fees

Congress may step in to regulate banks and credit unions overdraft policies.  The House has introduced the Consumer Overdraft Protection Fair Practices Act, which if it passes in the House and Senate, would force banks to alert consumers before they overdraw accounts with ATM withdrawals or debit purchases and would also give consumers a chance to abandon the transaction. Maybe the banks and credit unions will reverse or modify their overdraft policies to avoid regulation by Congress.