Banks and credit unions collected nearly $24 billion last year in overdraft fees, the majority of them overdraft fees on debit cards, according to the Center for Responsible Lending.
Once thought to be a convenient and safe alternative to credit cards, debit cards have been transformed to a bank profit center.
Card holders are unwittingly enrolled in “overdraft protection” plans such that the bank honors a debit card transaction that exceeds the available funds, and slaps on fees for the “service”.
I assure clients planning bankruptcy that debit cards provide much the same functionality as credit cards. Instead, it appears that they are subject to the same issuer gouging as the credit cards the client is surrendering.
The Federal Reserve is proposing new rules that require that bank customers opt in to overdraft protection, but places no limit on the amount of the fees or the frequency with which they are assessed. Legislation introduced in Congress would further address these abuses.
Let’s hope Congress acts.
Image courtesy of Mark Freeth