At 3,640% interest, bank overdraft fees getting ridiculous

Bank overdraft fees are getting higher and more punishing than ever.

That's not news to anyone who regularly reads WalletPop, but in case you need more proof, the Consumer Federation of America has come out with a new survey, looking at overdraft fees charged by the nation's largest banks.

I don't think any of this will be a surprise to anyone who is aware of how punitive fees have become, but the information in the survey is interesting nonetheless.

So I thought I'd do a rundown, that comes from their survey, on what banks are charging for their overdraft fees these days. Incidentally, according to the CFA, as a nation, we're spending over $17.5 billion on overdraft fees.
Average bank overdraft: $35

Highest overdraft: $39, courtesy of Citizens Bank. That's what you get upon your third overdraft in a year. According to the CFA, "fourteen of the sixteen largest banks charge $35 or more per overdraft, either initially or after a few overdrafts in a year." (Overdrafts, in case you're lucky enough not to know, is the term used to describe when you spend more than you have in your bank, and suddenly instead of, perhaps, $36.90 in your bank account, you have negative $15.43. If you've ever seen a negative number in your bank account, you're in overdraft, and for that, you'll be given an overdraft fee.)

Sustained overdraft fees: This occurring more and more -- and with shorter time frames. If you don't pay your bank overdraft fees in a timely manner, they'll hit you again with another fee. For instance, last month, in June, Bank of America started charging a $35 sustained overdraft fee after five business days.

So if you hadn't paid back the money you owed them, they'd hit you with this other charge. And new sustained overdraft fee news for customers of BB&T bank: According to the CFA, as of Aug. 1, BB&T will charge customers the sustained overdraft fee after five days instead of seven.

Citizens Bank is the least best place to go into overdraft. They'll hit you with two sustained overdraft fees. After six days, if you haven't paid them back, you'll get charged $35 after six days. If you go 10 days without paying them back, you'll get hit with another $35 fee.

At some banks, there's no maximum limit of overdraft fees that you can be hit with in a day: Citibank is pretty kind. You can't get hit with more than four overdraft fees in a day, so if you screw up in a big way, the most you'll pay is $136 (four times $34). At Bank of America, they limit you to 10 overdrafts a day, so if you really have a bad day, you could wind up owing them $350 in just overdraft fees. But at some banks, you can screw up in perpetuity. Fifth Third Bank, Chase, Wachovia, SunTrust, Regions Bank, PNC Bank, National City and HSBC have no limits on overdrafts.

Granted, a lot of critics will say that this is the customer's fault, when they make these errors, and of course, there is a lot of truth to that. But as the CFA stated in its press release with the findings, "in a typical overdraft loan program, banks unilaterally loan money to consumers without the consumer's knowledge or consent by paying or authorizing checks, debit card purchases, ATM withdrawals and preauthorized electronic payments when there is insufficient money in the account to cover the transaction."

In other words, sure, the customer shouldn't be overspending, and they should manage their money better. But let's given an overdrawn customer the benefit of the doubt. Let's say that a wife is out of town on a business trip, and she spends $100 at a fancy restaurant, not realizing that about the same time, her husband's car broke down, and he had to shell out a lot to a mechanic to get it fixed. So suddenly they're overdrawn.

Sure, the wife's card might get declined, but more and more, the payment for the meal whizzes right through. Nobody ever gets a waiter coming up and saying, "Oh, ma'am, I'm being told that you don't have the money to pay for this meal. But your bank says that they'll loan you the money for it, if you're willing to pay 3,640% interest on it."

(The CFA, which likens these overdrafts to payday loans, says that the interest on a $100 overdraft is 3,640%, if "the overdraft remains unpaid for seven days, using the bank's maximum fee and the sustained overdraft fees that would be imposed over a seven-day time period.)

It might be nice to have the choice to decide if you want to go into serious debt to pay for that meal, or if there's another, less costly way to pay for it.

I saw how this can play out just last week when I erroneously told my wife that we had $20 in one of several accounts at a credit union we belong to (although, yes, I'm also still a customer at a large commercial bank). Actually, we just had a few pennies in it, since I had raided the money for something else recently. Anyway, my wife tried using the credit union debit card at the dentist office, to buy some special toothbrush the dentist had recommended, and it was declined. She was a little embarrassed, true, but she whipped out another, different debit card, paid her bill and no harm was done.

"If that had been with our bank," I told my wife, "they would have let you buy the toothbrush, and then they would have socked us with a $37 fee."

She asked: Why haven't we just left our regular bank to just use a credit union?

I'm still not sure how to answer that.

Geoff Williams writes a lot about banks for WalletPop. He also is the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

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