Have you heard of the $38 latte? It represents the type of charges consumers may face when they are enrolled in overdraft protection. How much is this service really helping you or “protecting you?” Financial expert Garry Patterson is here to explain how to avoid overdraft protection fees and help ensure that you don’t get charged a huge fee for a small mistake.
Male: Now to some news this morning, affecting your money. A new report
calls into question the overdraft protection banks offer you.
It’s something that you pay for in advance, in case you spend
more than you actually have in your account.
Female: The consumer Financial Protection Bureau says the protection
you think you’re getting may be more for the bank than for you.
Garry Patterson is with Clear Point Credit Counseling. Gary, this
has been big news this week. Explain how this works, first of
all. The banks offer what, and you pay about how much for it?
Garry: Here’s what happened: Back in 2010, the federal government put into
place a law that said that banks had to get your consent before
they could charge you an overdraft fee. Most consumers thought,
“If it’s protection, maybe I should get that.” 40% of all
consumers opted-in. What happens is this: Every time you take
your bank account into a negative balance, it’s typically a $30
fee. In other words translating that, if you go out and you buy
a $3 cup of coffee and it puts that balance in the negative,
that cup of coffee just cost you $33, which is very expensive.
Male: That’s a lot of money right there, Garry. Is this in the small print,
fine print out there? Where do we find this to make sure this
doesn’t happen to us?
Garry: It’s in the fine print. In the large print, it’s going to say
‘protection’. Again, most people think, “I should get this. It’s
a good thing,” when in reality, it can be extremely expensive,
and typically, effects lower income consumers.
Female: That’s because they’re on the edge, living paycheck-to-
Female: The alternative is what? You’re in that coffee line and your
card’s declined. Is that what banks would say, “This is a good
thing because we don’t want you to be embarrassed”?
Garry: That’s the thing. A lot of people don’t want to be embarrassed, but
they don’t realize what cost they’re paying for that protection.
An option would perhaps be to open a line of credit on your
checking account. In other words, you wouldn’t get the fee, it
would just . . . the bank would cover the cost, with essentially
your own money. It ends up really . . . you got to watch out for
that because it can send you into debt.
Male: Garry, you also have me wondering; are most of your major banks out
there doing this right now?
Garry: They sure are. Here’s the thing: About 60% of income for banks on
checking accounts, comes from overdraft and non-sufficient fees.
Garry: That’s a lot of money.
Male: That’s a ton of cash.
Female: That’s a lot of money. What happens if you’ve been a good
customer for a while and you have that situation happen, and
they’re charging you $35 for a $3 . . . How often, if you call
and say, “This is ridiculous. Take it off”; will they?
Garry: Here’s what you need to do, typically: You need to talk to your loan
officer and he or she might be able to say, “Take that off. He’s
a good customer.”
Female: That does happen, so you ought to take it to that step.
Garry: It does happen, but typically, your consumers that are going to be in
that category are not going to let that happen very often.
Again, it’s those that are not quite so savvy. The problem is
this: Anytime you have . . . that you’re guilty of financial
misbehavior, it’s usually going to be met with large fees. It’s
typically a repeat situation.
Male: How does this also, Gary, maybe even ultimately affect my credit, as
well? Does it?
Garry: Here’s what can happen: If you have that overdraft protection and you
habitually let that account go into the negative, it can be
reason for what we call involuntary account closure.
Male: That means?
Garry: That means that you’re not a good credit risk, because everybody
needs a checking account. If you don’t have one, it would equate
to not having a diploma, education-wise.
Female: Your advice for consumers is to opt-out of that and just keep a
closer eye on what you’re spending?
Garry: 3 things: Opt-out of that, because typically when you opt-in, you’re
going to careless and you don’t pay attention to your finances.
At best, you’re going to be guilty of waste, at worse, you’re
headed for disaster. You could possibly get that line of credit,
but be very, very careful. I heard of a guy that every time he
went into the negative, the bank took $50 of his line of credit,
put it into his account. He thought they were paying that back
and they weren’t. Come to find out, when he did start paying
attention, he was in a lot of debt to his bank for that.
Female: If you do that, what should you do? Just watch it very
carefully and pay it back, immediately?
Garry: Use it like a credit card. Have it there only for an emergency, but
don’t take advantage of it. I think the biggest piece of
information that I would advise people: Pay very close to your
finances. Check that account. Oftentimes, people these days have
that piece of plastic and they look all around, they say, “I got
money. Let’s go get that $3 cup of coffee.” Bang.
Male: Is it almost best to put that money under the mattress these days, or
hasn’t gone that far yet?
Garry: You need a bank account, but you need to pay very, very close
attention t it.
Male: All right, Garry. Thank you.
Female: If you don’t know if you have it, you probably do have it. Go
ahead and call your bank and opt-out now.
Male: All right. Thanks.
Female: Thank you.
Male: We appreciate it.