Overdraft Fees On The Rise, Consumers Concerned
The current recession has really had a large impact on the financial consciousness of American consumers. Nowadays, American consumers are more aware of their finances than ever before. Whereas, a few years ago, the trend was uninhibited spending even when it was out of proportion to earnings, nowadays, consumers are focusing on savings, paying off debts and careful use of credit.
The eagle eye that consumers are keeping on their finances has uncovered many questionable actions being done by credit card companies. One particularly popular and well debated one is the issue of overdraft fees. Overdraft fees are the fees that are charged to a credit card holder when he or she goes over the credit limit of the credit card. For debit card holders, it is charged when their purchase brings their available balance to less than zero. Overdraft fees are usually quite high. For example, an overdraft of a debit card for even just a couple of dollars averages around $35.
The high cost of paying overdraft fees has certainly got a lot of consumers raising their eyebrows. Credit card companies contend that overdraft fees are necessary. It is also a well known argument of credit card companies to claim that the ability to overdraft is actually a feature which saves the card holder from embarrassment when he or she finds out there is not enough cash or credit available to cover their purchases. There is a small possibility that credit card holders may have preferred to pay large fees than be embarrassed at the counter but the economic recession has certainly done away with that. In these days of slow economic activity, card holders would much rather get embarrassed than pay a large overdraft fee.
Card holders are also miffed at the audacity of credit card companies to charge these fees without even allowing the card holders to cancel the transaction at the counter if it results in an overdraft. They are even more miffed at the fact that overdraft fee protection is usually enabled by default in card agreements without properly informing card holders. Recently, federal regulators also released a report saying that some banks are actually manipulating customer accounts to encourage overdraft fees. A study from the Federal Deposit Insurance Corp. (FDIC) showed that credit card companies process purchasing transaction in such a way so that larger purchases are accepted first before smaller ones.
Charging overdraft fees is actually a very lucrative profit stream for credit card companies. According to the FDIC, the credit card industry will earn $38.5 billion from overdraft loans this year, more than twice what they earned in 2009. Safe to say, overdraft fees are going to be staying for a while. Consumers will need to keep an even sharper eye on their credit card’s available balance and their debit card reserves.
