As we mentioned in a previous post, the Federal Reserve prohibited banks from automatically enrolling customers in overdraft protection which took effect in August 2010. Despite this, for those who do opt-in to the overdraft protection program, there's no limit to the amount of the fee and number of fees PER DAY can vary from bank to bank. According to the Consumer Federation of America, some banks have tacked on additional fees.
Alternatives to the Fees
For those who don't opt-in, of course, the bank will simply not process your check and you'll hear from the payee. While overdraft fees hurt your credit score, so does a returned check, as they are both part of your credit history, which makes up 35% of your score. Not a great alternative.
Another alternative that most banks offer would be to have the difference taken out of your savings account. While savings are for emergencies, if the check was to Nordstrom, and it was for those new shoes you just had to have, then this would NOT constitute an emergency. You're really hurting yourself in the long run and this, too, would not be a good alternative, unless you have the discipline to replenish your savings.
If you do opt-in, the median overdraft fee is unchanged from a year ago, at $35, and depending on your bank, you may incur up to 10/ day, for a whopping total of $350!
Some Banks Have Changed Their Reordering Procedures
Reordering is the process where banks want to maximize their overdraft fee income, so they line up the checks presented to your account for the day and they pay the largest check first so you incur an overdraft fee for EVERY small check. Check with your bank, for instance, Citibank is now ordering the processing from smallest to largest so you'll get hit with the least amount of overdraft fees.
Also, if it takes you over a certain period of time to repay the bank for the overdraft service, they may charge you additional fees. Some banks will charge you $15 for each 5-day period this "loan" is unpaid.
Is There Any Help For Overdraft Fees?
Last month the Consumer Financial Protection Bureau now has authority over banks with over $10 billion in assets, so hopefully something may be done quickly, as the Federal Reserve rules don't cover everything. Only time will tell. In the meantime, keep track of your spending, reconcile your bank statement monthly, and check your online balance regularly so you don't overdraft your account.
Have you incurred an overdraft fee lately?