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Why do people hate their banks? Well, it’s almost always because of what are called “stealth fees.”

These fees occur when a customer overdraws their account – either at an ATM or through a debit card purchase – without being warned that their account has insufficient funds to cover the transaction. The bank approves the transaction as a “convenience” to the customer and adds a fee to their account. This happens silently, without the bank ever alerting the customer that their account is empty and that a fee has been levied. It is not uncommon for these fees to be as high as $35 each.

A report “Debit Card Danger,” published in 2007 by the Center For Responsible Lending, a North Carolina-based, non-profit research group, analyzed the checking accounts of more than 5,000 customers of the nation’s 15 largest banks and found that debit card purchases and ATM withdrawals trigger 46 percent of high-cost overdraft loans. Written checks, on the other hand, are responsible for just over one quarter. Making an in-store debit card purchase is by far the most expensive way to overdraft, costing $2.17 for every dollar borrowed. By comparison, check-triggered overdraft loans cost $0.86 per dollar borrowed.

Alex Berenson of the New York Times reported in 2003 that Washington Mutual Bank earned over one billion dollars through stealth overdraft fees in a single year, according to industry analyst estimates. That’s nearly $3 million a day. And there are six other banks in the country larger than Washington Mutual.

Banks are enormous corporations and it’s almost impossible to grasp how much money $10 billion is – money that comes disproportionately from low- and middle-income Americans. The CRL, found in 2006 that the overwhelming majority of these fees – nearly three-quarters – are paid by financially-distressed customers who live “on the margins of solvency.” The added burden of stealth overdraft fees make providing for basic needs and living above zero even greater challenges.

In more understandable terms, the ten billion dollars that these companies generated through stealth fees in a single year is enough money to provide public housing for all 3 million homeless Americans for about a year and a half. So how much money are these banks making from this predatory practice? Enough to eliminate homelessness in the United States.

The group says these findings refute the contention commonly made by banks and credit unions, many of which also have fee-based overdraft programs, that they are protecting consumers by sparing them the expense of bounced checks.

Under these programs, banks do not reject ATM withdrawals or debit card purchases that exceed the balance in a customer’s account, nor do they warn customers that these transactions will put them in the red. The bank lets the transaction go through and charges a fee, even though the bank knows the customer does not have the money in the account. Most people consider this to be unfair on the part of the banks, according to a survey conducted by the Consumer Federation of America. In a CRL survey of 2,400 individuals with checking accounts, 79 percent respondents said they would cancel their ATM transaction if warned that it would exceed their balance.

A practice among many banks now is to keep transaction-stopping technology on hold while allowing a customer to run up overdraft fees. The bank will eventually implement their ability to decline transactions, but only after the negative balance grows to the point where it becomes a collection risk.

In the same way that institutions are able to instantly verify whether a customer is overdrawing their account, they can also allow customers to view their recent activity in real time. Many banks don’t do this. Instead, a customer’s online account access may deceptively not reveal recent transactions until several days after they occur.

Many would argue that each person should know how much money they have in the bank, and that banks have the right to charge these fees to the accounts of customers who exceed their balances, because the bank is essentially providing a loan.

If that were true, and these fees are, in fact, considered short-term loans, the CRL study found that the median annual percentage rate for a point-of-sale overdraft “loan” is more than 20,000%. Yes, more than twenty-thousand percent. Honestly, nobody wants that loan and no one would consider 20,000% interest to be “convenient.”

Letting a transaction proceed and adding a fee to it is hardly a courteous thing to do if the customer would prefer that you not do it. That’s like helping me across the street if I’d rather stay where I am.

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Steve

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