Debit card “courtesy fees” often unclear and unexpected
Debit cards tout the ultimate in convenience — access to cash at hand without having to write a check and wait for funds to process and transfer. But that convenience can come at a high and often unexpected cost.
A debit card links directly to a checking account, and in theory only allows the user to access funds they actually have. But most banks offer “courtesy protection,” allowing customers to charge more than they have available but with an overdraft charge for each purchase. In essence, the debit card becomes a credit card if the consumer over-spends with the bank covering the purchases.
“They [customers] are automatically enrolled in the overdraft protection program,” Carl Brown, bank spokesperson at Sovereign Bank, said. “That’s so the customer isn’t caught in an embarrassing situation at the grocery counter.”
Sovereign Bank is not alone in this practice. The Federal Deposit Insurance Corporation released a study that showed that 75 percent of FDIC institutions automatically enrolled customers in a fee-based overdraft. The fees provide lucrative opportunities for financial institutions. Insufficient-funds fees, also called overdraft fees, overdraft protection fees and courtesy fees, were estimated at $1.97 billion and made up three-quarters of banks’ service charges on deposit accounts.
The study found that overdraft fees ranged from $10 to $38 with a median fee of $27 per overdraft transaction. 81 percent of banks allow overdrafts at ATM’s and point-of-sale terminals. While allowing the overdraft transaction, 88 percent of banks only notified the customer after the transaction and the fee had taken place for point-of-sale transactions and 70 percent after ATM transactions.
