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Making a Better Overdraft

Adam Rust's picture

Posted April 22, 2011

While Bank of America has been able to differentiate itself in the media through its clever redesign of its overdraft policies, most banks have done little to change. A more reasoned review of the Bank of America method should come to the same conclusion.

I reviewed about 100 comments made by consumers to the FDIC during its 2010 rulemaking

process. The following is a summary of those comments, in order of how often citizens chose to comment on each topic.

  • Check Sequencing (32 comments of 100): There is no issue that provoked more comments. Consumers are very aware of how their checks are being processed and they feel that it is a deliberate manipulation. They understand that their checks will be paid from highest-to-lowest, but they still find the process very uncertain. Consumers want their deposits to clear quickly.
  • The cost of overdraft fees (30 comments of 100): Consumers feel that banks charge too much for their overdraft fees. There were more than a few commenters that were clear that while they would prefer to opt-in for overdraft coverage, they are not willing to pay $35 for an overdraft. Many are also frustrated by fees for moving money from linked accounts. Those fees are generally lower, but the critique is the same. Consumers feel that overdraft charges should cover the cost to a bank of providing the funds, but no more.
  • Disclosures (27 comments): Consumers are infuriated by the inability to get a straight answer from their bank. The new rules are an improvement. Text message alerts arrive too late. Bank tellers do not let consumers know that a withdrawal will provoke a charge. Paper statements are not helpful, because they don't come on time.
  • Being charged multiple overdrafts on the same day:  (10 comments) Consumers want a limit on the number of overdrafts that they must pay for one mistake.
  • Change how banks hold funds (9 comments). Consumers know that banks can keep most of a check deposit on hold.
  • NSF Fees (6 comments):  Consumers do not want to pay $35 if they are not given the benefit of a overdraft payment. An NSF is a lose-lose event, because the consumer pays charge but still faces the problems associated with a bad check. An NSF fee may not be the only fee that a consumer pays. He or she will likely have to pay a returned check fee as well. On the other end, the recipient of the check may have to pay a Check Reversal Fee.
  • Deposit Transfer fees (6 comments): One alternative to establishing overdraft protection is to link an account to checking. Consumers can link savings accounts, a credit card, or even another checking account. Consumers do not want to pay the fee, often $10, for this service.

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