CNN reports: Automatic overdraft loans can look like a consumer’s best friend, but they can come at a steep cost.
Our friends at the Consumer Federation of America had this to say: “Banks should have to get their customers’ affirmative consent before signing them up for their most expensive loans.” And the Center for Responsible Lending added, “most debit overdrafts are small, averaging less than the overdraft fee.”
Payday Pundit wonders why consumer groups only ask for “customers’ affirmative consent” when it comes to overdraft protection–but want to ban payday loans. Don’t they realize payday loans are fully transparent and require much more than a “customers’ affirmative consent.” Why the double standard?
First off, I am not an advocate or lobbyist. I am not affiliated with any organization. I am just a consumer bothered by what’s happening regarding this issue.
I had been undecided on this issue until I had seen the recent commercials. Those commercials really bothered me.
It is clear to me that payday lenders have earned their reputation for being manipulative and predatory.
Those commercials are dishonest, disingenuous and are clearly a misrepresentation of reality.
The FACT is that the vast majority of people using payday loans ARE NOT paying $15 dollars for a $100 dollar loan. They are paying a much, much, much higher percentage for much more money.
It’s like they’re saying “Well, you COULD only pay $15 for a $100 loan (you just won’t)”.
Despite this truth, the payday loan ads portray a “family just trying to get by” This clearly is not the reality of payday loans as the ads would try to intimate.
Unscrupulous lending practices in the mortgage industry has led to a foreclosure crisis that has affected millions of Americans and contributed to a downtrodden economy.
If consumers can be protected by the government from high-fee mortgage lenders, the same protection ought to extend to payday lenders.
In light of the industries completely dishonest ad campaign, I’ve made up my mind. Payday lenders are as dishonest as their reputation and I don’t believe a word they say.
You are incorrect. Nobody is “paying a higher percentage.” If they take a larger loan than $100, the percent is the same. It’s still $15 per $100 loaned. That was the law in Ohio.
here is what was on cnn.com about the bank fees.
Raw Deal: Overdraft protection
Automatic overdraft loans can look like a consumer’s best friend, but they can come at a steep cost.
NEW YORK (CNNMoney.com) — Terry Read transferred $400 into his wife’s checking account on a Friday. Over the weekend, his wife used her debit card to make some small purchases, and on Monday she was slammed with a $35 overdraft fee because his cash transfer hadn’t cleared yet.
“They took my $400 out of my account immediately of course,” Read said. Since both use the same bank, hitting his wife with an overdraft fee seemed “absolutely ridiculous” to him.
Overdraft fees set in when a bank approves a transaction even if the customer doesn’t have sufficient funds. The bank is essentially providing a temporary loan and charging plenty – usually between $25 and $35, no matter how big or small the transaction.
Banks typically provide overdraft protection automatically, and while it’s touted as a convenience, the cost can come as a shock to unsuspecting customers.
“Banks should have to get their customers’ affirmative consent before signing them up for their most expensive loans,” Jean Ann Fox, director of financial services at the Consumer Federation of America said in a statement.
Almost half of all overdrafts happen with debit card purchases, according to the Center for Responsible Lending. And most debit overdrafts are small, averaging less than the overdraft fee, the consumer advocacy group said.
In a recent study, the Consumer Federation of America found that overdraft fees at the 10 largest banks are on the rise. The average highest fee charged for overdrafts is $34.65, up 15% from 2005, the consumer group said.
There can be additional fees if the overdraft is not repaid by making a sufficient deposit within a few days and customers can rack up as many as six or seven overdraft fees in one day if they aren’t aware of their low balance.
Talkback: Have you been hit with overdraft fees?
Now Congress may step in.
Reps. Carolyn Maloney, D-N.Y. and Barney Frank, D-Mass., have proposed the Consumer Overdraft Protection Fair Practices Act in an attempt to protect consumers from hefty fees.
“I’ve been working on reducing sky-high overdraft fees for several years now,” Congresswoman Maloney said in an e-mail to CNNMoney.com. “Overdraft loans can be useful financial tools, but many consumers are being enrolled in costly overdraft protection programs without their consent. [Under the bill] consumers would have to “opt-in” to overdraft protection programs and banks would be required to inform consumers when they are about to overdraw their accounts.”
The bill, which is currently pending before Congress, also requires that banks provide full, written disclosure of their overdraft policies to customers.
In a statement, Citibank (C, Fortune 500) said that full disclosure is already standard practice, and overdraft fees should not be viewed as unfair or deceptive, since Citi customers are informed about the practice and the $34 overdraft fee.
What can you do?
Other banks also counter that their overdraft policies are clear and the fees are disclosed at the time an account is opened. Also, since many banks offer online banking, telephone banking and balance alerts via e-mail for free, consumers should be able to keep a careful eye on their balance.
“In most cases, banking customers can avoid overdrafting their accounts and paying any associated fee by knowing their balances,” said Fred Solomon, a spokesman at PNC (PNC, Fortune 500) bank.
PNC recently sent its customers a notice allowing them to opt-out of overdraft access. “They can call PNC and we will automatically exclude them from the convenience of overdraft access for all ATM transactions and purchases,” Solomon said.
Other banks will do this too, although the consumer may have to take the initiative and ask for it.
Another way to avoid costly overdraft fees is to sign up for an overdraft protection plan with a linked account. Those plans allow banking customers to link their checking account with a savings account or even their credit card. So if you write a check and there isn’t enough money in your checking account to cover it, then the bank will draw the money from another account.
But that assumes that you have other funds. And despite the fact that you’re backing the account with your own money, in most cases there’s a charge for that service too, although it’s far less than the overdraft fee. For example, Chase (JPM, Fortune 500) customers get charged $5 for each time they use their overdraft protection plan. Fifth Third Bancorp (FITB, Fortune 500) offers this service for $9 a pop. If you use the overdraft protection more than 10 times in a 12-month period, then the fee gets upped to $15.
Despite the expense, there is an upside to overdraft protection. It not only allows you to complete a transaction and remain in good standing with the parties you do business with, you also avoid the potential embarrassment of being denied at the register. That might be worth $35 to some people.
D Collins please call your local payday lending store and ask the question about how much they charge for $100 loan and the answer will always be $15 or less as some stores offer a first time loan for FREE. The only other fee that can be incurred is if that customer bounces a check to us, then we can charge an NSF fee of about $20-30. Unless a delinquent account goes to small claims court or other collection procedures are taken that is the only fees that ANY customer will pay. I have been in all aspects of lending for over 30 years and payday loans are the most transparent of any loan. No HIDDEN COSTS OR FEES HERE!