FinCap Friday: Protection or Deception? | Hosted by @missbehelpful

Summary

In 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

00:00

💼 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.

Keywords

💡Overdraft Fee

An overdraft fee is a charge imposed by a bank or financial institution when a customer's account balance is insufficient to cover a transaction, but the bank allows the transaction to proceed anyway. In the video, it's highlighted that one out of every three Americans with a checking account pays these fees, emphasizing the prevalence and potential burden of such charges.

💡Checking Account

A checking account is a type of bank account that allows depositors to write checks or withdraw money against their account balance. The video script discusses how overdraft fees are associated with these accounts, especially when individuals attempt transactions that exceed their available balance.

💡Opt In

Opting in refers to the customer's choice to activate or agree to a specific service or feature, such as overdraft coverage. The script mentions that financial institutions cannot charge overdraft fees unless the customer opts in, illustrating the importance of consumer consent in these transactions.

💡Consumer Financial Protection Bureau (CFPB)

The CFPB is a U.S. government agency that aims to protect consumers in the financial sector. The video script cites a study from the CFPB, which revealed the high number of Americans paying overdraft fees, underscoring the agency's role in monitoring and reporting on consumer financial practices.

💡Transaction

A transaction in banking refers to any movement of money into, out of, or within an account. The script uses this term to describe the actions, like buying something at a store or getting cash from an ATM, that can lead to overdraft fees if the account lacks sufficient funds.

💡Declined Transaction

A declined transaction occurs when a bank refuses to process a transaction due to insufficient funds. The video explains that if a customer has not opted into overdraft coverage, any transaction that would result in an overdraft is simply declined.

💡Overdraft Coverage

Overdraft coverage is a service provided by banks that allows customers to exceed their account balance for a transaction, with the bank temporarily lending the shortfall. The video script points out that banks may deceptively pre-check the opt-in box for this service or fail to disclose the associated fees.

💡Penalties

Penalties in the context of the video refer to the fines imposed on banks for illegal practices related to overdraft fees. The script mentions a major bank having to pay $122 million in penalties for such practices, highlighting the severity of the issue.

💡Profits

Profits, as discussed in the video, are the financial gains that banks make from services like overdraft fees. The script reveals that banks made $11 billion in profits from overdraft fees alone in 2019, indicating the significant revenue stream these fees represent.

💡Mobile Banking Apps

Mobile banking apps are software applications used to manage bank accounts from mobile devices. The video suggests using these apps to monitor account balances and set alerts to avoid overdrafts, showcasing a proactive approach to managing one's finances.

💡Bank or Credit Union

A bank or credit union is a financial institution that accepts deposits and provides various financial services. The script advises considering banks or credit unions that do not charge overdraft fees when opening a new account, emphasizing the option to choose institutions with more consumer-friendly policies.

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