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.