Tax and Spend Conservatism (Update) – Bank Overdraft Fees

Many of you have asked for an update to the original article called Tax and Spend Conservatism. I will be updating this from time to time on Saturdays.

© Original content written by James R. Carlson

Pickpocket stealing a mans wallet

Nation-wide, we are experiencing penalties and fees that take more money out of our pockets than should be allowed. The people who gain from this type of pickpocketing usually wear suits, have very nice houses, drive expensive cars, and look down their noses at the rest of us common folk. Middle class Americans like you and me are at risk of being taken by these tax and spend conservatives and the metrics bear this out.

Looking at the data available from the Statistic Brain Research Institute, we can see that on average, banks charge Americans $33.5 billion a year for overdraft fees.

Year Total Paid in Overdraft Fees ($Billion) Average Overdraft Fee ($)
2014 35.25 30
2013 33.80 29
2012 32.00 28
2011 31.60 27
2010 35.30 30
2009 37.10 28
2008 35.40 26
2007 34.10 25
2006 31.50 23
2005 29.70 20

Graphing this data we can easily see that as the overdraft charges increase so too does the amount of fees gained by the banks. Although this makes intuitive sense, we should understand that reducing these fees also relieves the financial burden that we all share.

The following table provides many more statistics about overdraft charges. Among the rest is the 78% of American who prefer a transaction be declined instead of becoming an overdraft. Aren’t banks there to serve us? Not themselves? But these statistics do not tell the whole story.

Overdraft Statistics Data
Percent of Americans who have over-drafted their account within the past year 18%
Percent of over-drafters who would prefer their transaction be declined 78%
Percent of over-drafters who make less than $30,000 per year 64%
Percent of people enrolled in a overdraft protection plan 24%
Average checking account fees per account holder enrolled in overdraft protection $119
Average checking account fees per account holder not enrolled in overdraft protection $28

Although states may regulate the amount a bank can charge for an overdraft fee, there is no national limit for bank overdraft fees. Some people pay overdraft charges for a fraction of a dollar over the amount available in the bank account. The percentage of overdraft charges of $35 for a $1 overdraft is 3500%. I personally paid an overdraft fee that amounted to nearly 300% of the actual overdraft amount.

Some people are fighting back with law suits for the apparent fraud being practiced by banks. And article about Excessive Bank Overdraft Fees explains this further.

Authorization Holds

Another practice that banks are alleged to have used to push customers into overdraft is authorization holds. Authorization holds occur between the time a bank card purchase is made and the time the merchant settles the transaction. Prior to the merchant settling the transaction, the amount of the purchase is held, but it has not actually been withdrawn from the buyer’s account yet. Once the merchant settles the account, which can occur a few days after the purchase is made, the funds are transferred to the merchant and the customer no longer has the money in his account. For example, a customer with a $100 in his account makes a purchase of $40. That $40 is held immediately for the merchant, but is not actually taken out of the account because the money has not yet been transferred to the merchant. The customer cannot access this money, but it is still, technically, in his account. When the merchant submits her batch of transactions, the money is then taken from the account and transferred to the merchant. This is all completely legitimate. However, some customers have complained that their banks back-date transactions to the date they occurred, not the date they were settled. They say this pushes their account into overdraft because they may not have had the funds necessary on the date the transaction occurred but did have the funds necessary by the day the transaction was settled.

[Excessive Bank Overdraft Fees]

Another tactic used by banks to make more money out of your pocket in the form of overdraft fees is to reorder the transactions that occur in one day. By putting the largest transaction first, smaller transactions trip the boundary between sufficient and insufficient funds and the banks make more money in overdraft fees. If the reverse were done, so too would be the amount you pay in overdraft fees.

Banks also have the ability to deposit checks sooner than required by law. The lack of posting a deposit can lead to an overdraft. Although the practice is currently condoned by law, the ability to save you money or make money on overdraft charges represents the core of the problem with banks. That’s why I say they are getting drunk on the excesses of overdraft charges and are not interested in who suffers for it.

Many banks provide overdraft protection, and have been required to since 2010, but that costs money too. An FDIC study shows that overdraft protection amounts to a short term loan that eventually cost consumers billions of dollars in interest. There is little help coming from the government to regulate this kind of excessive activity that ultimately abuses consumers.

As mentioned above, people are fighting back. Many law suits have been filed that have earned millions of dollars from banks for their less than honest or downright fraudulent activities.

Banks that could potentially face lawsuits regarding their overdraft procedures include:

  • Ally Financial
  • Bank of Hawaii
  • Bank of the West
  • Bank of Oklahoma
  • Capital One Financial Corp.
  • Commerce Bank
  • Fifth Third
  • HSBC
  • Valley National Bank (NJ)
  • New York Community Bank (NY)
  • Community Bank, N.A. (NY)
  • NBT Bank, N.A. (NY)
  • First Niagara Bank, N.A. (NY)
  • Umpqua (OR and CA)
  • Citizens Bank (MI and OH)
  • Bank Midwest (MO)
  • Stillwater (OK)
  • Vectra (CO)
  • Santa Barbara Bank and Trust (CA)
  • City National (CA)
  • Sandy Spring (MD)
  • Bank of the Ozarks (AR)
  • EverBank (FL)
  • Tri Counties Bank (CA)
  • NBT Bank (NY and PA)
  • Banco Popular

[Excessive Bank Overdraft Fees]

These law suits are fine for those who bring them to the banks and win but what about the rest of us? Who’s looking out for the common person?

Federal regulation should limit the amount a bank can charge for an overdraft fee to either 50% of the overdraft or $35, whichever is less. The $30+ billion that consumers pay nation-wide for these fees slows economic growth and hurts everyday people who are just trying to make it through a work a day world from paycheck to paycheck.

Tax and spend conservatism is a practice among the cocktail conservatives who are getting drunk off the excessive riches they gain from consumers. We need to recognize that the public recapture of private funds, traditionally called a tax for government activity, is a tax on the private sector; this can lead to excessive with tax and spend liberalism. However, a private recapture of private funds is another kind of tax on Americans that can lead to tax and spend conservatism. This tax is very regressive as it hits middle class Americans who are simply trying to make ends meet. Like tax and spend liberalism, tax and spend conservatism is a job killer, a sink to our economy, and bad economic policy. It’s time we pass laws that restrict the drunken revelry that tax and spend conservatives practice. Let’s keep the free markets free and protect consumers from unfair practices of tax and spend liberalism and tax and spend conservatism.

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