Banks are worried overdraft cash stream will dry up

Coda • GREG BEAN

A young man of my acquaintance is fortunate to still be employed in this dismal economy, but like many young people on his own, he lives paycheck to paycheck. And sometimes, as it gets close to payday, he runs a little short for a sandwich at lunch or a few bucks worth of gas for his car.

He pays for everything with his ATM card, but since he doesn’t have a working computer, he doesn’t always track his bank balance every day to see how close to the wire he’s treading. And sometimes, more often than he’d like, he runs his account over. It’s seldom more than 50 bucks and never more than a hundred, and he’s never in the red for more than a day. But in the last year, the bank has socked him for several hundred dollars worth of overdraft fees at $35 a pop. In the last month alone, he overdrew his account for $6.78 at the grocery store, $3.79 at the grocery store, $8.99 at the coffee shop, $6.10 for gas and $6 for a sandwich at the deli.

Total amount overdrawn: $31.66.

Total overdraft fees from bank: $175.

And his story is certainly not unique. It happens thousands of times in this country, every day.

The fact is that banks love these overdraft charges to the bottoms of their black hearts, and they’re one of their most lucrative revenue streams. A report by the Reuters news service in August said that banks in the United States were poised to make $38.5 billion in 2009 from fees, and over $20 billion of that was predicted to come from overdraft fees. Economists think they’ll make more this year. The overdraft fees, according to Reuters, account for over 75 percent of all the service charges levied by banks to their customers.

It got so far out of hand that Congress finally stepped in and tackled overdraft fees as part of its new regulations on banks. As part of that reform, by this summer bank customers must opt in to overdraft protection in order for the banks to cover overdrafts to their accounts. This turns the present system on its head, because currently many customers aren’t given a choice about whether they want overdraft protection, or aren’t told if they do have a choice. After this summer, if customers don’t opt in, their ATM cards will just stop working when their bank accounts reach zero.

In response, banks are doing everything they can to keep customers from opting out so they can protect this mother lode of fees.

Bank of America recently announced its own overdraft fee reform. Among other minor reforms, as of last October, the bank no longer charges fees on more than four overdraft items in one day, and does not charge fees to customerswhose accounts are overdrawn by less than $10 for a single day. In July, more internal reforms will kick in. It will institute an annual limit on the number of times customers can overdraw their accounts, and provide new customers the opportunity to opt in to overdraft protection when they open their accounts. This, by the way, will be required under federal regulation, so Bank of America is beating the deadline by a month.

Big deal. Bank of America did not announce that it would reduce its $35 per overdraft fee, however.

Over at Chase, they’re going on the attack with a full-court marketing blitz, whose aim is apparently to scare customers into opting in to overdraft protection before summer. According to a story in The New York Times last week, in recent weeks Chase has been sending dire letters to customers warning them that their ATM cards will soon stop working the old way “even in an emergency” unless “we hear from you” about opting in to overdraft protection before Aug. 15 (when the new federal regulations take effect).

I’m not sure what the other big banking institutions are doing to protect their overdraft fee flow, but you can bet the drumbeat will get a lot louder as the Aug. 15 deadline approaches.

Warning! Doom! Penniless in an EMERGENCY!

If there were any real truth in advertising, those letters would say, “Opt in so our executives can get their bonuses!” But I doubt we’ll be seeing that message anytime soon.

Call me cynical, but I’m not going to be shedding many tears for our nation’s banking institutions, which have been hammering consumers with these unfair and grossly inflated fees for years.

Like Bank of America, they might be trying to craft a more warm and fuzzy image now, with federal reforms on the way, but federal reforms would likely have never been instituted if banks hadn’t been so greedy from the get-go.

Does anyone think Congress would have even considered regulating overdraft fees if the per-transaction fee was $10 instead of the average $29, or the $35 charged by many, like Bank of America?

My readers are pretty smart people. What do you think?

Nope, Congress usually only steps in when things are so out of whack that consumers can’t tell bankers from bank robbers, unless the bank robbers are wearing ski masks or other disguises.

I don’t need to tell anyone what happened in the investment industry. We’ll be paying for that one for a generation.

And look what happened to the credit card industry. If it hadn’t gotten to the point that credit card companies were charging higher interest rates than your average loan shark, and changing those rates according to the phase of the moon, Congress would have let them go on their merry ways forever. Why threaten all those donations made by credit card companies and their lobbyists?

At some point, though, Congress had to step in with regulations that haven’t even taken effect yet. Lawmakers had to do that or face mobs with pitchforks and torches made up of their own constituents. But from all the whining in the credit card industry, you’d think their toes were being amputated without benefit of anesthesia.

What’s that sound? (Rubbing thumb and index finger together.) It’s the world’s smallest violin playing “My Heart Bleeds for You.”

Gregory Bean is the former executive editor of Greater Media Newspapers. You can reach him at gbean@gmnews.com.