FinCap Friday: Protection or Deception? | Hosted by @missbehelpful
Summary
TLDRIn a recent 'FinCap Friday' episode by NGPF, it's revealed that one-third of Americans with checking accounts pay overdraft fees. Overdrafts occur when banks lend money for transactions that exceed account balances. While seemingly helpful, banks must now obtain customer consent to charge overdraft fees, a rule updated in 2009. However, some banks have been deceptively pre-checking opt-in boxes or not disclosing fee details. In 2020, a major bank paid $122 million in penalties for illegal practices. To avoid fees, consumers can opt-out, monitor accounts with alerts, or choose banks without overdraft fees, contributing to the $11 billion in bank profits from these fees in 2019.
Takeaways
- 💼 Overdraft fees are charges by banks when a customer's account balance is insufficient to cover a transaction.
- 📉 In 2009, the CFPB updated rules requiring customers to opt-in for banks to charge overdraft fees.
- 🔍 One out of every three Americans with a checking account pays overdraft fees.
- 🚫 Banks cannot charge overdraft fees without the customer's permission to opt-in.
- 🤔 Banks have been found to engage in deceptive practices to get customers to opt-in for overdraft coverage.
- 💸 Overdraft fees are a significant source of revenue for banks, generating $11 billion in 2019.
- 💵 The average overdraft fee is about $35 per occurrence.
- 📞 Customers can opt-out of overdraft coverage by calling their bank.
- 📱 Monitoring account balances with mobile banking apps or alerts can help avoid overdrafts.
- 🏦 When opening a new account, consider banks or credit unions that do not charge overdraft fees.
Q & A
What is an overdraft fee?
-An overdraft fee is a charge that banks impose when you attempt to make a transaction that exceeds your available balance in your checking account. Banks often cover the transaction and lend you the money, but at a cost.
What did the CFPB's 2009 rule update entail?
-The 2009 rule update by the Consumer Financial Protection Bureau (CFPB) required banks to obtain customers' explicit permission, known as opting in, before charging them overdraft fees on ATM and one-time transactions.
Why do banks sometimes engage in shady practices related to overdraft fees?
-Banks engage in shady practices because overdraft fees can be a significant source of revenue. In 2019, banks made $11 billion in profits from overdraft fees alone.
What happened in the summer of 2020 regarding overdraft fees?
-In the summer of 2020, a major bank was caught engaging in illegal practices related to overdraft fees and had to pay $122 million in penalties.
What is one way customers can protect themselves from overdraft fees?
-Customers can opt out of overdraft coverage by calling their bank and requesting not to be opted into overdraft protection.
How can monitoring one's account help avoid overdraft fees?
-Monitoring your account with mobile banking apps or by setting up alerts for when your balance falls below a certain amount can help you avoid overdraft fees by keeping you informed about your account balance.
What should a customer consider when opening a new bank account to avoid overdraft fees?
-When opening a new bank account, customers should consider choosing a bank or credit union that does not charge overdraft fees on any of their accounts.
What is the average cost of an overdraft fee?
-The average cost of an overdraft fee is about $35 per occurrence.
How can customers give their permission for overdraft coverage?
-Customers can give permission for overdraft coverage by opting in, which can be done through their bank's online banking services, mobile app, or by contacting the bank directly.
What is the consequence of not opting in for overdraft coverage?
-If a customer does not opt in for overdraft coverage, transactions that exceed the available balance in their account will be declined rather than being covered by the bank.
What misleading tactics have banks been known to use to get customers to opt in for overdraft protection?
-Banks have been known to use tactics such as pre-checking the opt-in box on checking account applications or marketing overdraft protection as a beneficial service without fully disclosing the associated fees.
Outlines
💼 Overdraft Fees Explained
The video script discusses the issue of overdraft fees in the US banking system. It explains that one-third of Americans with checking accounts incur these fees when they don't have sufficient funds to cover a transaction, yet banks lend them money to prevent the transaction from being declined. The script highlights how, in 2009, the CFPB updated rules requiring consumers to opt-in for overdraft coverage, but some banks have been found to engage in deceptive practices to ensure customers are opted in. Banks can profit significantly from these fees, earning $11 billion in 2019 alone, averaging $35 per fee. The script advises consumers to opt out of overdraft coverage if they wish to avoid these fees, monitor their accounts closely, and consider banks that do not charge overdraft fees.
Mindmap
Keywords
💡Overdraft Fee
💡Checking Account
💡Opt In
💡Consumer Financial Protection Bureau (CFPB)
💡Transaction
💡Declined Transaction
💡Overdraft Coverage
💡Penalties
💡Profits
💡Mobile Banking Apps
💡Bank or Credit Union
Highlights
One out of every three Americans with a checking account pays overdraft fees.
An overdraft fee occurs when a bank lends money for a transaction that exceeds the account balance.
In 2009, CFPB updated rules requiring banks to get customer permission to charge overdraft fees.
If customers don't opt in, transactions that overdraw the account are declined.
Banks have been caught using deceptive practices to get customers to opt in for overdraft coverage.
Some banks pre-checked the opt-in box on account applications for overdraft coverage.
Banks often don't mention fees when asking customers about overdraft protection.
A major bank had to pay $122 million in penalties for illegal overdraft fee practices.
Overdraft fees generated $11 billion in profits for banks in 2019.
The average overdraft fee is about $35 each time.
Customers can opt out of overdraft coverage by calling their bank.
Monitoring account balance with mobile banking apps or alerts can help avoid overdrafts.
New bank account customers might consider banks that don't charge overdraft fees.
Banks make a significant amount of money from overdraft fees.
Customers should be aware of the fees associated with overdraft protection.
There are banks and credit unions that do not charge overdraft fees at all.
Transcripts
i'm yannelli also known as miss be
helpful
with another fincap friday brought to
you by ngpf
a recent study from the consumer
financial protection bureau
or cfpb revealed that one out of every
three americans with a checking account
pays overdraft fees to their bank or
credit union
but what exactly is an overdraft fee
if you're buying something at the store
or getting cash from an atm
but you don't have enough money in your
checking account to cover that
transaction
then most banks will lend you the money
so that your transaction doesn't get
declined
that actually sounds really helpful so
what's the problem
back in 2009 the cfpb updated their
rules that banks have to follow
so now financial institutions can't just
charge you a fee for these types of
transactions
unless you opt in that means you have to
give them
your permission to charge you fees or
else they
can't put this feature on your checking
account if you don't opt in
when you don't have enough money to
cover a transaction that transaction
just gets declined
but recently banks have been caught
doing some really shady things
for example one bank gave people
checking account applications that
already had the box checked to opt in
for overdraft coverage
many other banks just ask their
customers do you want overdraft
protection to
protect yourself from overdrawing your
account and customers will say
yeah yeah that sounds like a good thing
i want to protect my account but the
bankers
don't mention anything about the fees
in the summer of 2020 a major bank got
caught doing some of these illegal
practices
and had to pay 122 million dollars in
penalties
banks will go out of their way like this
because overdraft fees could mean
big money for them in 2019 banks brought
in 11
billion dollars in profits just from
overdraft fees and these fees
average about 35 dollars each time so
what can you do if you're frustrated
by overdraft fees first of all you can
opt out call up your bank and tell them
you don't want to be opted into
overdraft coverage anymore
next you can monitor your account with
mobile banking apps
or by setting up text or email alerts
when you go below
a certain amount of money in your bank
account and finally
if you're opening a brand new bank
account you might want to consider going
with a bank or credit union that doesn't
charge
any overdraft fees with any of their
accounts at all
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