A Bank Heist, Committed by the Banks

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Bank customers don’t like fees. Early on during the debate over reforming debit card overdraft programs—in which a customer was charged $30 or $35 for swiping a card that lacked enough funds to cover the bill—a survey was conducted to see how many people would prefer that such a transaction would be declined, so long as no fee was assessed. 80% of debit card holders said they’d rather the card be declined to avoid the fee. Yet somehow, when laws passed mandating that customers be given an explicit choice to opt in or pass on “overdraft protection” services, as they’re called, as many as 75% of customers agreed to pay the fees so long as their cards wouldn’t be declined. So many people opted in that overdraft fees are on pace to total $38.5 billion in 2011, up from $36.5 billion last year.

Why would bank customers say one thing and do another? Why would such large numbers opt in to programs and fee structures that surveys have shown very few people actually want? One explanation comes via a new survey, which reveals that many customers have no clue what, exactly, they’ve opted into.

First off, just how many bank customers opted in to overdraft protection is up for debate. Polls have listed figures such as 22%, 30%, 46%, and even 75%. That’s a huge range, obviously. Something tells me that the answers may change depending on how the questions are being asked in these polls—lending even more credence to the theory that people are confused by what overdraft protection is, what it does, and even whether or not they’ve opted in or out.

In a new survey, from the Center for Responsible Lending, the figure rounded up for those opting in to overdraft protection was 33%. Pretty far off from 46%, let alone 75%.

Most disturbing of all is that it sure seems that those who opted in did so based on deceptive information provided by their banks. Here are two key findings:

• Sixty percent (60%) of consumers who opted in stated that an important reason they did so was to avoid a fee if their debit card was declined. In fact, a declined debit card costs consumers nothing.

• Sixty-four percent (64%) of consumers who opted in stated that an important reason they did so was to avoid bouncing paper checks. The truth is that the opt-in rules cover only debit card and ATM transactions.

The majority of account holders opting in to overdraft protection were certainly confused, if not tricked and misled. As a result, the banks reap in billions.

The survey also indicates that, to some extent, many bank customers were annoyed, perhaps even coerced, into opting in:

• For almost half of those who opted in, simply stopping the bank from bombarding them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

Last summer, banks launched aggressive campaigns to convince their most lucrative customers (frequent overdrafters) to opt in to overdraft protection. Messages like this one were sent nonstop:

The Bounce Overdraft Program was designed to protect you from the cost and embarrassment of having your transactions denied.

Cost? What cost? If the customer refused to opt in to overdraft protection, there would be no bank fee when a debit card is declined. But the message here implies something different.

The takeaway here, if you haven’t gathered, is that there is reason to not trust everything a bank says. It’s essential to dig deeper, beyond the carefully crafted marketing material, and find out how things really work. Only then can you make an informed decision.

And never, ever, let anyone push you into signing up for any “service,” “program,” or “protection” that you don’t want, or don’t fully understand.

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