Last month, I wrote about research into the Credit Card Accountability Responsibility and Disclosure (CARD) Act that discussed how the law benefited consumers. One area it fell short was overdraft fees. Consumers could pay up to $25 per over-limit transaction or $35 if up to six previous charges were also over the line. Despite this standardization of overdraft fees, two-thirds of consumers were paying the higher $35 rate, indicating that over-limit charges were “non-salient” to account holders. Appropriately, The New York Times‘ Dealbook blog ran an article on how banks’ overdraft practices harm consumers.
Despite the CARD Act, it’s still quite common for borrowers to incur successive over-limit charges. This phenomenon can be common for consumers whose balances are typically low to begin with. Consequently, banks reaped $11 billion in overdraft fees in 2015, 8 percent of their profits.
Another tactic is encouraging consumers to sign up for additional credit lines that they can tap if their spending goes into the red. This was in fact what happened to the account holder the article used as an illustration. She was unsure where her $96 payments were going every month, but she eventually found that she’d unknowingly created a $3,400 debt due to over-limit charges. This debt came at a high interest rate and included other penalties. She claimed she’d never agreed to the line of credit.
Another way banks profit on over-limit transactions is by “reordering” them. Instead of processing transactions in chronological order, some banks start with the largest transactions as soon as possible to push consumers over the limit, and then add the remaining transactions on top of it to maximize over-limit fees. The practice has waned, but some banks still engage in it, claiming it ensures that important transactions, like mortgage payments, go through first.
Finally, and relevant to the CARD Act, banks deliberately mischaracterize overdraft safeguards to entice consumers into signing up for them. Rather than automatically declining over-limit transactions, these “overdraft protection” features allow those very transactions to go through—for a fee. What looks like an opt-in feature is really something people would preferred to opt out of.
The Dealbook article can be found here.
If there’s any mystery as to why the CARD Act’s overdraft safeguards aren’t as effective as we thought, it’s that banks still try to get around them. Maybe it’s the fact that consumers are still acclimating to a financial world in which they don’t track their purchases via a check book register, but even so, overdraft fees can seriously hamper consumers financially. If you’re encountering financial problems due to excessive overdraft fees, like a large unpayable debt described in the article, then talking to an experienced New York bankruptcy lawyer can help.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
