Thursday, August 21, 2008

Citizens Bank: Maybe not your typical bank, but typical overdraft fees apply

Following up on my earlier post on Consumer Overdraft Protection (and always curious about how commercial matters are working in practice), I made a call to one of the banks I use, Citizens Bank, to ask. I was surprised to find out that they charge a whopping $39 per item on overdrafts, whether by debit or by paper check (of course, not tied in any respect to the size of the transaction). This is higher than the average of average $34.65 per item reported in the Consumer Federation of America study. It makes sense since overdraft fees are a big money maker for banks. If consumers write fewer paper checks, then banks was to recoup the income with debit card overdraft fees.

According to a USA Today article earlier this year, banks used to just deny debit card purchases (in the same way many credit cards do) in the event a consumer had too little money in their account. So, the banks charged overdraft fees primarily on bounced checks. In the USA Today article, a representative of Wachovia explained that debit card overdrafts are for customer “convenience” and that banks don’t really know if a particular transaction will overdraw the account. Underscoring the small size of many transactions, Greg McBride of Bankrate.com commented “"I don't know a consumer on the street who's willing to pay a $35 overdraft fee to have a $3 Slurpee." McBride has a point here. Moreover, many colleges now have partnered with banks to allow student id cards to operate as debit cards. This includes the overdraft fees on debit charges.

I asked the Citizens Bank representative about opting-out of overdraft protection. The rep acted like they had never heard of such a thing. Why would you want that I was asked? Then I explained to her the practices of PNC and some other banks beginning to offer opting out to customers (and I mentioned the proposals before the Federal Reserve). So, I asked again if I could opt out and what programs the bank had. She then told me that in fact, I could either entirely opt-out or just opt-out for the debit card simply by asking over the phone (no forms to fill out). She did advise me that they don’t always know if a debit card transaction will in fact overdraw an account. I chose to opt-out for the debit card just in case.

The Federal Reserve’s proposed regulations on overdraft protection appear more needed than ever. This is true, even if they only address the notice to consumers and some basic opting-out options. I understand that some customers may want full overdraft protection (even against the smaller debit card purchases). It is concerning, though, that even a consumer who knows they want to opt-out may have difficulty in getting the bank to accept the opting-out. Those who don’t know about how to opt-out or who cannot master the bank bureaucracy are out of luck.

— JSM

4 comments:

Jason Kilborn said...

I read in the W$J just today that some 46% of overdrafts are from debit card usage! You bet your @$$ these fees are big money for the banks--this is the new profit center after a wave of defaults made interest on loans a less predictable and more iffy proposition.

Anonymous said...

I was charged a $39 fee for a $.05 overdraft. Citizens Bank has gotten completely out of control. I've noticed an overdraft and immediately deposited funds the same day and still been charged a fee. They don't even give you an opportunity to rectify the problem. I used to love banking there and now I can't wait to put my money somewhere else. I'm done with them. They could care less about their "citizens".

Anonymous said...

I just got hit with a $37 charge for a 33 cent overcharge. And I had deposited a check into the account earlier in the day that just did not clear yet. The people that write the policies at Citizens bank have no heart and no soul. Legal, yes,...moral, no way.

Helane said...

In the course of three days I was charged over 400 dollars in overdraft fees with Citizens Bank, I am trying to recoup some of the money. The online help basically ignored my questions and one of the managers I spoke to told me we are not charity..WTF!!