Fico Help Central

Yesterday, we discussed how Debit Card Fees can cost you a fortune. Here’s another way.

One gentlemen made the mistake of paying for fast food with his debit card. He figures he spent only about $5 more than he had in his account. Unfortunately, by the time he realized there was a problem, the bank had hit him with over $300 in overdraft fees. At $25 to $35 per occurrence, it’s easy to rack up hundreds of dollars in needless NSF fees.

The Center for Responsible Lending, a consumer group, estimates that overdraft charges cost people about $17.5 billion each year. The center’s research reveals that about 45 percent of those overdrafts are the result of using a debit card or taking out cash from the ATM.

Banks used to refuse any debit card transaction that would overdraw a depositor’s account., but not any more. Banks could warn depositors when their accounts are close to being overdrawn - but they don’t.

Instead, most financial institutions automatically enroll their depositors in a program that loans them the amount of the overdraft—but at a steep price. The Center for Responsible Lending estimates that Banks that offer these lending programs can expect a sharp increase in overdraft revenues, as much as 200 to 400 percent.

Calculated as an interest rate, rather than a fee, the cost of these loans is astronomical. The average amount of a point-of-sale purchase that overdraws an account is $14.75. The average fee is more than double that amount. According to the agency, most consumers only use these loans for a few days. So on an overdraft loan, the annual percentage rate can be as high as 20,000 percent. In defense of this practice, bankers like to point out that it’s the responsibility of the account holders to monitor their account balances and avoid overdrafts.

Of course, that requires the account holder to know how much money is in their account. If you don’t, then you too will be hit with needless Debit Card Fees.

To learn more about how to dramatically Improve your Credit Score, visit my website at www.ficohelpcentral.com.

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