There’s a Spot in Hell Reserved for Bank Overdraft Fees

Photographer: Kimihiro Hoshino/AFP via Getty Images

A protester smashes a window at a bank in Oakland, California. Close

A protester smashes a window at a bank in Oakland, California.

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Photographer: Kimihiro Hoshino/AFP via Getty Images

A protester smashes a window at a bank in Oakland, California.

Here's one positive thing about bank fees: They unite almost everyone, at least in shared hatred.

Few fees have a more unifying effect than overdraft fees -- charges banks levy when adequate funds aren't available. U.S. banks are fighting regulators' proposals to collect more data on overdraft fees, Bloomberg's Carter Dougherty reports. Overdraft fees totaled $17 billion in 2011, and the Center for Responsible Lending worries fee collections could creep higher. It may not be clear how much the fees boost banks’ bottom lines, but it's obvious that customers are paying annual percentage rates above 4,000 for so-called "protection" from overdrafts.

The frustration over fees isn't just about being nickeled and dimed. It's that they tend to prove that we live up to the lowest expectations of our financial behavior. No one likes to confront a personal weakness and have to pay for it at the same time. It's numeric proof that people are as flawed as the banks are banking on them to be.

Americans love a freebie, and have spent the last decade flocking to "free" checking accounts. That forced banks to seek new sources of revenue, so they began to aggressively collect overdraft fees. That was okay with potential customers since so few of them planned on bouncing lots and lots of checks.

But, it turns out, too many people are too optimistic. Overdrafts are inevitable because of how close to the edge many Americans’ finances are. One study of 7,500 bank customers found that 72 percent of checking accounts drop below $100 in any given month. More than 36 million checking accounts get overdrawn each year, and 8 million account holders do so more than six times a year, according to the Center for Responsible Lending.

Despite their fragile finances, consumers don't read the fine print or do the math that could save them from those charges. Many customers don't know that unless they give their express consent, banks are required to deny debit and ATM transactions that would trigger an overdraft fee. They may not even remember agreeing to get overdraft protection. Thanks to banks’ marketing campaigns, it can sound like the responsible thing to do -- it’s protection.

Some may actually appreciate a bank covering their debit card transaction when they don’t have enough money in an account. How many realize how much that’s really costing them, though? A $34 fee on a $100 overdraft, which typically must be paid back in three days, works out to an annual percentage rate above 4,000. That kind of protection sounds dangerous.

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