Banks making billions in the form of overdraft fees

The Federal Reserve has been regularly coming up with financial reforms at regular intervals of time to keep the profit making practices of banks in check. However, despite these reforms, banks do come up with ways in which they can rake in billions to appease their shareholders. One of the ways in which they are continuing this endeavor at the moment is through overdraft fees.

One of the customers with overdraft facilities, Sharon Drapeau, accepted overdraft protection assuming it would prevent her from being burdened with penalties in case she overdrew the balance in her checking account. However, she says, things have not panned out the way she has assumed it would. She said that despite the overdraft protection she was charged for the transfer and overdraft and in addition to it, she was also charged with the fee for the returned check.

Greg Daugherty from Consumer Reports says that the rules by the Federal Reserve were implemented with the intention to curb the malpractices of the banks and nullify abusive charges. However, the rules do not seem to have worked well. He said that in the current scenario the banks have to first ensure their customers sign up for the overdraft protection before extending this facility to them. For example, in case you have exceeded the withdrawal limit of your checking account, you can still go ahead and purchase a magazine or a cup of coffee; however there are banks that will charge you up to $35 per transaction for being overdrawn.

Drapeau also said that the overdraft protection is just a sham and banks are robbing billions of dollars from consumers each year in the form of overdraft fees. She said that banks should avoid calling it a ‘protection’ when they are still going to charge customers exorbitant fees for the same.

Consumers who truly want to be protected from overdraft fees should not sign up for it in the first place. The ones who have already signed up for it should opt out before it is too late.