This morning I got an e-mail from my bank, Wells Fargo, informing me that I would need to opt-in for the “benefits” of their Overdraft Protection Service. I’m not generally in the habit of overdrawing my bank accounts, so I’ll happily have to decline their offer. But apparently a good number of Americans are in the habit of spending more than is in their accounts (and eventually end up in credit repair). In 2009 consumers paid $38 billion in overdraft fees.
New Federal laws are likely to put a dent in that figure this year. Banks must now ask their customers whether or not they want to enroll for overdraft protection when using their debit or ATM cards. Before this new law, enrollment was automatic, considered by banks a “courtesy” to its customers. It seems like a pricey courtesy when banks charge an average of $35 per overdraft and $5 a day until the account is brought back to a positive status.
Connecting With Customers
I will admit, I was pleasantly surprised to see that Wells Fargo had sent an e-mail and actually tried reaching out to me. I was somewhat aware that these changes were coming since I do try to keep my finger on the pulse of what’s going on financially, especially with banks and everything in my wallet that’s plastic. But apparently most Americans have no clue about the upcoming changes.
Last month Harris Interactive conducted a poll where they asked 2,755 adults with bank accounts: Were you aware that regulations were changing with respect to overdrafts on electronic transactions from bank accounts?
More than a third of those polled had no idea about the changes, and only about a quarter were truly knowledgeable about them. Banks obviously need to do a better job of educating their customers about the new laws.
The “Benefits” Spin
In trying to inform their customers of the change, Wells Fargo took the opportunity to put a sales spin on their e-mail. Their website lists the benefits of their as:
• Increased Convenience
• Added Flexibility
• A “Back-Up” Plan
• No Fee
That last benefit is the kicker. There’s no fee if you never use their “service,” but a $35 fee if you don’t bring your account to a positive balance the same day you overdraft. Needless to say, spending more than what’s in your bank accounts should be avoided at all costs, but having to pay penalties on top of that can be a financial nightmare.
The benefits don’t seem to be too attractive to customers as, according to a NY Times survey, about 80% of people said “they would rather have the bank deny the transaction than charge them a fee.”
Don’t Spend More Money Than You Have
Now that I’ve pointed out that I think these “benefits” are pretty ridiculous and the fees associated with them are highway robbery, it should be said that consumers bring this upon themselves. The bank didn’t go spend all of the money in your accounts, you did.
If you’re really that detached from your own bank accounts you need to get a better handle of your finances. Most banks have online account management that should make your life a little easier. Another valuable website is Mint.com, a budgeting and personal finance site that gets all of your money & accounts in order.
It makes no difference whether you’re hit with an overdraft fee or your purchase is denied; if you’re spending money that’s not even in the bank there’s a bigger problem that needs to be addressed. There should be a simple rule that you try to live by: Don’t spend money you don’t have. So stop blaming the banks, get a financial plan in order and save your money instead of spending it on penalties and fees.
