Have we all lost the ability to balance our checkbooks?
In just two years, the amount of overdraft fees collected by the largest banks has increased by 70 percent, according to a recent study by the Center for Responsible Lending. It's a big change from the past. There was a time when debit cards would be turned down if you did not have enough money in your account to cover a transaction.
But today's debit cards never say, "No" and are a great deal for the bank.
Debit-card transactions are the leading cause of overdrafts, according to the center.
"You can't rely on a low account balance running into a brick wall and a transaction not going through," said Greg McBride, a senior financial analyst at Bankrate.com. "That $4 coffee could cost you $34 with an overdraft fee."
As recently as 2004, 80 percent of banks would not have let you make that transaction. No fee would have been charged.
"Now, most do," said Eric Halperin, the Center for Responsible Lending's Washington director. When a debit causes an account to be overdrawn, here comes the overdraft fee, which averages $27.40. You'll pay one for that transaction and any others that follow. At some banks, there's a second, higher fee for any overdraft after the first one.
You may not know all this is going on for several days, until a notice from the bank finds its way to your mailbox.
Consumers in 2006 paid $17.5 billion a year in overdraft fees, according to the Center for Responsible Lending's study of transactions at the nation's 15 largest banks. That's up from $10.3 billion in 2004.
Helping to contribute to it, the organization said, is a growing use of check-clearing techniques that make overdrafts more likely.
Say you have three outstanding checks that arrive at your bank on the same day, when your balance is $100. One is for $15, another for $30 and a third for $90. A bank that uses a highest-to-lowest method would first clear the $90 check, so then the next two checks would trigger overdraft fees. If the bank had gone from lowest to highest, two checks would have cleared and there would only have been one overdraft.
Is this abuse, as the center says, or is it your responsibility to make sure you have sufficient funds in your account? After all, you can check your balance any time, by phone, at an automated-teller machine or online.
Banks say people want their debit transactions approved when they have insufficient funds, Nessa Feddis, of the American Bankers Association, told a congressional hearing.
A bill from Rep. Carolyn B. Maloney, a New York Democrat, would require banks to tell people at the ATM and possibly at the checkout counter when their accounts run dry. It would also prohibit banks from charging overdraft fees unless customers have agreed to pay them.
And it would ban the highest-check-first clearing order and direct banks not to delay posting deposits so that overdrafts result.
Harriet Johnson Brackey writes for the South Florida Sun-Sentinel.