Just weeks after President Obama signed into law new rules clamping down on runaway credit card fees, banks are accelerating their push for plastic profits by making an end run around the restrictions — that is, jacking up fees related to debit cards.
Earlier this month, Bank of America announced a $35 fee for most debit-card overdrafts — plus a second $35 fee if it isn’t repaid in five days.
In March, PNC Bank hiked its sustained overdraft fee by 16 percent to $7 a day.
The moves by BofA and PNC follow inflated international fees set by Citigroup and a new, 2 percent foreign fee imposed by Discover Cards.
These upticks not only deftly sidestep the new credit-card law — which does not address debit cards — but come at exactly the time the popularity of debit cards among American consumers surpasses that of credit cards.
“We’ve been watching these fees steadily going up,” said Jean Ann Fox, director of financial services at the Consumer Federation of America. “And it stands to reason if the opportunity to gouge consumers with one product is being curtailed, banks will look for other opportunities.”
In 2008, overdraft and non-sufficient funds fees ballooned to $34.7 billion, according to a new estimate by management advisory firm Bretton Woods. That’s an outstanding 37 percent jump from the $25.3 billion in overdraft and NSF fees banks collected in 2006, a total pulled together by the Center for Responsible Lending.
At the center of the inflated overdraft debit-card fee issue is that banks now automatically enroll customers in their overdraft program.
BofA, Citi, PNC and Discover are hardly alone. Five years ago, 80 percent of banks would decline an ATM or debit charge if the customer lacked the funds. But a scathing 2008 report from the FDIC, and a March 2009 Center for Responsible Lending study of 16 large banks show lenders are squeezing ever more revenue out of debit card users by:
* Enrolling consumers in overdraft plans without their consent, and not allowing them to opt out
* Charging higher initial fees on debit overdrafts. Citibank recently raised its fee to $34 from the $30 rate it had last August. The median maximum overdraft fee at big banks now totals a whopping $35
* Employing tiered fees. Eight major banks now use them, compared with just three in 2005. Fifth Third Bank charges $25 to $37 per overdraft, while US Bank hits consumers with $19 for the initial overdraft, then $35 for the next three, and $37.50 for subsequent charges
* Paying overdrafts at the banks’ discretion, rather than chronologically, generating higher fees. Putting the bigger transactions first can drain an account, letting banks zap the consumer for each little debit for a hamburger or cup of coffee, racking up several hundred dollars in fees
* Putting few or no limits on the number of overdraft fees consumers are hit with on a given day.
The Federal Reserve and Congress are trying to play catch-up with the banks. A bill introduced by Rep. Carolyn Maloney [D-NY] would define the overdraft coverage as a loan, and force banks to get customers to opt-in before an overdraft can happen.
The Maloney bill would also bar banks from manipulating debits — that is, clearing larger transactions first, thus raising the chance for multiple overdraft charges.
The American Bankers Association’s Nessa Feddis dismissed the outcry, noting: “Overdraft fees are simple to avoid by keeping track of your account, or arranging with the bank to send alerts.”