Debit cards fuel overdraft outrages
Forty dollars for a Big Mac? That might sound over the top, but it
barely tips the outrage meter when you compare it to the
20,000-percent-interest loan U.S. consumers regularly take out to pay
for such $40 burgers. How could this be?
Well, bounced checks just aren't what they used to be.
A new study says that most of the time consumers overdraw their
accounts now, bounced checks aren't the culprit. Instead, debit card
purchases are chief cause of overdrafts.
Many people
don't realize that a carefree swipe of their debit card at a
point-of-sale terminal to buy a Big Mac could result in "courtesy
overdraft" fee of $30 or more. But such fees are becoming increasingly
common. When faced with a transaction that would send a consumers’
account into negative territory, banks now regularly approve such
transactions, cover the expense, and charge hefty fees.
Financial institutions collected some $10 billion in 2005 through
what's sometimes called automatic overdraft protection, according to
the new study conducted by the Center for Responsible Lending. The
agency reviewed full transaction histories for 5,000 typical American
households to determine the cause of bounced check fees.
In its report, called "Debit Card Danger," the Center for
Responsible Lending said that 38 percent of overdrafts were caused by
debit card, point-of-sale transactions, while paper checks triggered an
overdraft only 27 percent of the time. Online bill payments accounted
for another 27 percent of overdrafts.