- Bank Debit Cards - Salvatore Vuono
Many consumers have experienced the financial pain of using a checking account debit card to pay for a small transaction that turned into a disaster because of bank fees. Recent changes in banking regulations help protect consumers from this situation.
The Debit Card Overdraft Fee Problem
The debit card overdraft fee problem may occur when a consumer attempts to make a debit card purchase for more than is in his or her checking account. For example, if a consumer has a checking account balance of $100 and attempts to make a debit card transaction of $125, many banks will approve the transaction. The result would be that the consumer's checking account would be overdrawn by $25. The bank would then assess the checking account with an overdraft fee. According to the November 2008 FDIC Study of Bank Overdraft Programs, in 2007 the median overdraft fee was $27 and some banks charge as much as $40.
The $40 glazed donut problem demonstrates even more clearly why the practice outrages consumers. If a consumer has a checking account with a $1.00 balance and the consumer attempts to use his or her debit card to buy a glazed donut for $1.25, the bank may allow the transaction. However, the bank may also assess the consumer's checking account with an overdraft fee of up to $40. The result is that the consumer may end up paying $41.25 for that glazed donut!
Federal Reserve Regulations Protect Consumers
The new Federal Reserve regulations give consumers more control over debit card transactions that will result in overdraft fees. Consumers will have to opt in to an overdraft program that will allow banks to approve debit card transactions that will result in overdrafts, and ultimately overdraft fees. Otherwise, the bank will have to decline such transactions.
This is great news for consumers. While consumers should always be careful with their checking accounts, regularly balance them and know exactly how much money they have in their accounts, the reality is that many consumers do not. Despite the fact that banks may lecture consumers on their responsibility for overdrafts, the banking industry heavily relies on overdraft fees for a significant part of its revenue. According to the May 24th 2010 New York Times Editorial, "Will That Be Cash? Or Big Bank Fees?" in 2009 banks collected $20 billion in overdraft fees from debit card transactions alone. Another $18.5 billion was collected for overdraft fees resulting from check writing.
New Bank Fees on the Horizon
The bad news for consumers is that banks will find ways to make up for the lost revenue from debit card overdraft fees. It is likely that free checking accounts will be a thing of the past. But new bank fees such as checking account maintenance fees are much easier to stomach than even the occasional $40 glazed donut.
Stacey Montgomery - Stacey Montgomery is an experienced writer and illustrator. She has over 20 years of writing, publishing and editing experience. A ...
