The Nevada Sagebrush

While senior Aaron Norton might know some of the finer things in life are free, his free enrollment in Bank of America’s overdraft protection program turned the heartfelt adage on its head.

Overdraft fees, traditionally a large source of income for banks, are facing consumer ire. Many large banks are changing their overdraft policies. Photo by Brian Bolton/Nevada Sagebrush.

In the midst of a global recession, Norton questioned the tactics financial giants use to stay profitable. He said his bank played a primary role in swiftly morphing his financial security to anxiety-ridden debt in a matter of days.

“I’m a complete advocate of personal responsibility, but the banks are taking a lot of advantage of our naiveté,” Norton, a 26-year-old art major, said. “There were so many circumstances that were up to the bank, and they chose the path that would make all the difference when it’d be the maximum inconvenience to me.”

Norton’s frustration stemmed from a day of multiple overdrafts in his checking account with Bank of America.

Before leaving for a summer program in Chile, Norton’s roommate gave him rent checks so it wouldn’t be a hassle while abroad. About a week after depositing the check, Norton was in the middle of paying many other bills when he learned Bank of America rejected the deposit.

Readjusted, his checking account balance turned the cell phone, utility and other bill payments into overdrafts. Each came with individual $35 fees.

National overdraft fees average $26, according to the research firm Moebs Services. The firm reported 44.5 percent of all banks and credit unions in the country have overdraft income greater than net income, with totals reaching $38.5 billion in 2009. This is a 10-year increase of more than $20 billion.

Such statistics have pressed Congress and consumers to demand immediate action. Democrats in both the House of Representatives and Senate plan to consider bills requiring banks to allow an opt-out of overdraft programs, which many banks do not offer.

After Bank of America rejected his roommate’s check, Norton saw that his account was severely overdrawn. The bank tacked on over $150 in penalties as icing on the cake.

“Basically, they said it was my roommate’s fault and not theirs,” Norton said. “I just don’t get how the banks can say overdraft ‘protection’ makes it so you don’t need to have a credit card but will automatically punish you for using your debit too much.”

University of Nevada, Reno Associate Professor of Finance Chunlin Liu said such a reaction was not surprising.
“The banks do not do anything illegal, but I personally believe this approach is not the best for the image of the industry,” Liu said. “I don’t think this is a good practice to pursue, especially if you know low-income customers are more likely to overdraft and are the individuals who can’t afford even more fees.”

In response to the uproar, corporate giants Bank of America and JPMorgan Chase last Tuesday announced plans to rewrite their overdraft policies. As reported in the New York Times, Bank of America will offer opt-outs in October for customers who would prefer rejected transactions when their account is at zero.

The New York Times reported Chase will soon allow opt-outs while also changing the way it processes transactions. It used to process larger ones first, not chronologically, which would ultimately lead to frequent overdrafts.

U.S. Bank, Wells Fargo, Halifax and other banks followed suit and later in the week announced overhauls of their own overdraft policies.

“If one bank can introduce a consumer good, the others will soon follow to grab the same benefit,” said Liu, a former Bank of America economist. “I don’t want the government getting into specifics in how banks do business, and the competition and market forces are best ensuring everyone plays fair again.”

Norton said he might opt out of the protection program when it’s offered. Regardless, his anger at his bank’s decisions remains.

“I don’t think banks are so concerned with getting new customers,” he said. “They want to get the most out of the ones that already trust them. Why do they have 10 booths in the Quad for opening credit cards if they want us to be financially sound?”

Norton ended up having to transfer the balance to a credit account and was forced to pay for the first half of his fall tuition with credit. With no credit remaining and even having to take a second job, Norton said his stress is growing again with an upcoming deferred payment.

“I’ve been scrambling so much that all the money I need is being burned away,” he said. “Even when I got the money somewhat settled, I was still in the red. And it was all on their (the bank’s) whim.”

Neal Morton can be reached at news@nevadasagebrush.com

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