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Overdraft fees are making banks billions of extra dollars in a manner which can only be described as a deceptive, unfair, and unreasonable business practice. Banks just love the idea of making these windfall profits under the disingenuous guise of offering "overdraft protection" - when the real objective is to seize the opportunity to make an outrageous profit. After all, who wouldn't love to be in a business where you could invest $10 and, in a split second, double or triple it.

That's exactly what can happen when, for example, a bank customer uses a debit card to make a $60 purchase with only $50 of "available" funds left in his or her account. Rather than the transaction being "declined", the bank might automatically see (through its sophisticated software) a great opportunity to make a quick buck; since the bank is likely to know that the customer is good for the money. In fact, the bank might know that a deposit has already been made, but simply has not yet posted that deposit as "available" funds.

Perhaps you've noticed, with your own checking account, that withdrawals (by check, by ATM, or by debit card at the point-of-sale) can be deducted from your account with the speed of lightning, but deposits can sometimes take much longer.

Of course, the banks say that it would cost them millions to upgrade their software and technology to implement new policies designed to eliminate the abusive charges for customers. Some banks also argue that overdraft fees make it possible to extend free checking accounts to customers.

In a January 7, 2009 article by Laura Bruce at Bankrate.com, Jean Ann Fox, director of financial services at Consumer Federation of America in Washington, D.C. explained:

"The reason that banks charge the same fee essentially for an overdraft as they do for an NSF transaction is because under the antiquated Federal Reserve rules that are still in effect the banks don't have to comply with the Truth in Lending regulations if there's no contract covering your overdraft and if they charge the same fee they would have charged to bounce it." Also, Laura Bruce reported that Fox "expects Rep. Carolyn Maloney's (D-NY) bill, the Consumer Overdraft Protection Fair Practices Act to be reintroduced in Congress in 2009. The bill amends the Truth in Lending Act, the Electronic Funds Transfer Act, and the Expedited Funds Availability Act to beef up consumer protections when it comes to automatic overdrafts."

Don't hold your breath.

- Ed Smith, Publisher
The EHS Letter Manual