Washington, DCWhen it comes to charging excessive overdraft fees, not just the big banks are under fire. Law firms are investigating some smaller, regional banks for allegedly charging excessive bank overdraft fees. Although many people believe the big banks are making massive profits off bank overdraft fees, attorneys allege smaller banks also made money from charging their customers excessive fees.
According to Jeff Kaliel, attorney at Tycko & Zavareei, at issue are overdraft fees charged when customers are not overdrawn on their account.
"It is one thing to charge an overdraft fee when someone has actually overdrawn their account," Kaliel says. "It is entirely another to charge an overdraft fee when the customer's account has sufficient funds for the purchase."
Some banks are accused of holding deposits to accounts, allowing customers to spend money they thought was already deposited into their account and pushing those customers temporarily into overdraft, then charging overdraft fees for it. Furthermore, some banks have been accused of re-ording transactions to push customers into overdraft more quickly than they should have been. With banks charging an overdraft fee on every overdraft transaction, those profits can add up quickly for banks.
As of August 15, 2010, banks will no longer be able to charge customers for overdraft fees unless those customers have signed up (also known as opting in) for overdraft protection.
That deadline, however, does not mean that banks have given up on encouraging people to opt-in to overdraft protection. Some banks are using aggressive marketing tactics to persuade customers—especially those who are most likely to need overdraft protection—to join their programs. Meanwhile, banks are highlighting the embarrassment that customers could face if their transactions are denied.
Central Pacific Bank in Hawaii lists on its website (centralpacificbank.com) the positives for opting-in to overdraft protection. Among the benefits that Central Pacific Bank lists are increasing the convenience of having the transaction approved even when there are insufficient funds in an account, avoiding the embarrassment of having a transaction declined at the checkout and having a back-up plan if there is no other way to complete the purchase.
The bank states that if a transaction that overdraws an account is approved, the customer will incur the normal overdraft fee of $30, which, the bank notes, is the same as returning a check unpaid. Furthermore, the bank highlights that there is no fee to keep overdraft privilege and no fee if customers do not use it.
This is how many banks attempt to ensure they do not lose profits because of the new overdraft legislation, and with good reason. According to some estimates, revenues from ATM and debit card overdraft fees made up half the bank industry's $37 billion in profits from fees in 2009. That is a lot of money for the banks to lose.
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