Banks are earning huge revenue by fleecing customers with the checking account overdraft fees

While the free checking account is disappearing from most banks; most of these banks are also charging a huge fee compared to what they have in the past. Either the fees have seen a hike or there are limited facilities that are available for free.

As per the study conducted by the Pew Charitable Trust on the 10 major banks, the profits that are associated with the overdraft fees have increased to almost $20 billion in the last decade alone. The main aim of this organization is to ensure more transparency in the checking accounts that are offered by banks. They also wish to see more responsibility, free market principles, and fairness.

The study has been titled ‘Hidden Risks: The Case for Safe and Transparent Checking Accounts.’ The overdraft penalty fees as well as other checking account fees have been investigated upon and they have found that the fees have increased manifold since the last few years. The overdraft penalty fees during 2000 were at $18.6 billion for the checking accounts but have now increased to $38.5 billion in fees now in 2011. Hence, the typical overdraft fees will amount to an APR of 5,000 percent stated the report. The study has found that the banks may risk losing money on checking accounts and the overdrafts in these accounts. But the study has failed to understand clearly as to what the risks are, and the correlation with the fees.

This data had been collected by the Pew researchers during 2010. They stated that at that time of data collection, all the 250 types of checking accounts that were offered by the 10 largest banks that were part of the study, had in fact set the bank’s right to re-order the withdrawal amounts from the highest to the lowest. This only means that if there is an overdraft the banks will have multiple overdraft fees on several of the smaller amounts, instead of first clearing all the smaller amounts and subsequently having just one big amount where the overdraft fee would be applicable.

In addition, at least 8 out of 10 banks that were part of the study had reserved the right to post the withdrawals prior to the deposits and thereby increasing the chances of charging the overdraft fees. However, the study also observed that many lenders had changed their practices but there were still a few who were following these tactics.