I remember when debit cards first came out in the mid-1990s. Our bank mailed my husband and I each a card and we were on our way.
At first we thought it was great. Well, to be clear, it was my husband who thought it was great. You see I was in possession of the checkbook, so I already had access to the money in our checking account whenever I wanted it. But now, with his new debit card in hand, my husband now had immediate access to the funds in our joint-checking just like I did. Perfect, right?! Well, not so much.
Let me explain. Whenever I went shopping or wrote a check for cash, I immediately wrote the debit in the register and subtracted it from our balance. You gotta remember back then there was no internet banking, so there was no way to know exactly what your balance was until your bank statement came in the mail at the end of your cycle—unless, of course, you kept meticulous records by tracking every debit. But here’s the thing, my husband, knowing perfectly well how these things worked saved each and every receipt whenever he used his debit card so he could give them to me to put in the register. The problem was, he didn’t always hand them over in a timely fashion. That led to a couple of overdraft charges from our bank and merchants alike—yikes! Don’t you hate double-dipping! It didn’t take long for us to put a kibosh on the debit card thing.
Fast-forward a couple of decades and we both are back to having debit cards (and yes, I’m still writing my debits in the checking register) but internet banking has given us the ability to keep better tabs on money coming and going. But that’s not always the case for a lot of people. I read an old New York Times article by Ron Lieber and Andrew Martin called “Overspending on Debit Cards Is a Boon for Banks” that talks about how lucrative debit cards are for banks.
You see banking institutions have their debit cards set up with a nifty feature they market as “overdraft protection”. In an effort to save you, the consumer, from embarrassment by having a debit card rejected, let’s say, while you’re out on a dinner date, they will pay the debit (oftentimes ‘floating’ you money from your own savings account!) while charging you a fairly steep fee for the convenience.
The NYT article tells a story about a bank customer that was stunned when his bank charged him seven $34.00 fees to cover seven purchases he didn’t have cash in his account to cover. For example, they charged him $34.00 to cover his $4.11 Starbucks purchase, and didn’t notify him of the problem until after they covered these seven expenditures at $34.00 a pop.
The fees generated from the marketed overdraft protection have become an important source of income for the banking industry. In fact, according to that article, banks make more covering overdrafts than they do on penalty fees from credit cards.
“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
There have even been claims of banking institutions manipulating the order in which they pay purchases, running larger purchases first so more fees are incurred.
Federal regulators have acknowledged problems since 2001, they have done little to curb the explosive growth of overdraft fees.
In 2017 alone, Americans paid $34 billion in overdraft fees.
The sad truth is that people need to qualify to get a credit card, but are handed a debit card when they open a checking account. What we all need to understand is that the convenience of having a debit card comes with responsibility.
Please stay on top of your accounts. You’ve worked hard for your money, don’t let your bank ‘protect’ it with their overdraft fees.
A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.
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