savage money / By Jennifer Savage

Insolvency Resolved

In 2010, let’s all get a handle on the bank’s insane overdraft charges

(Dec. 24, 2009)  The confession took place, as they do, at a dinner party turned late-night wine-flavored gabfest. The blonde leaned in closer, voice dropping: “I’m overdrawn — again. It’s crazy. If you knew how much I’ve paid in overdraft charges this year …”

Others nodded. One whispered a four-figure amount. “It is crazy,” she agreed.

None of the guests were insane, lazy or incompetent, yet most had been overdrawn before, some, like our four-figured gal, multiple times. Just as important as why otherwise cautious, sensible people engage in behavior clearly self-destructive is why banks would charge such shocking fees to begin with.

The answer to the second part isn’t surprising. Banks siphon a ton of money off their customers via “courtesy” fees: financial institutions collected over $38 million in 2007 and 2008. The most significant portion stemmed from overdraft charges, which have been raised by as much as 35 percent in the past few years.

According to Mint.com, the average household spent $368 on non-sufficient funds fees in 2008. Of those, the ones who tended to go overdrawn more often squandered about $1,472 — which is just about the sum murmured at the aforementioned dinner party. More than 50 million Americans overdrew their accounts last year; more than half of those did so more than five times in that 12-month period. The dinner guests were not exceptions; our financial system and the habits it encourages create an environment where spending more than one has — and losing track of that spending — is the norm.

The good news is, some better regulating kicks in between July 1 and Aug. 15, 2010. Instead of extending customers the “courtesy” of approving transactions for which funds are not actually available and charging them for that favor after the fact, account holders will have to deliberately opt in to such a system. (This will not apply to checks and recurring automatic debit card payments.) If you have a checking account, you will be notified of your option to choose overdraft “protection” with a full explanation of the fees involved. If you do nothing, you have not opted in. You must deliberately tell the bank that yes, you want to be allowed to swipe your debit card at will and deal with the fallout later. Otherwise, if your account is down to $51 and you’re trying to ring up $68 worth of groceries at Wildberries, your card will be declined. Awesome! OK, not awesome — awkward and embarrassing, really — but sure beats a $33 slap in your overdrawn face after the fact.

But what to do between now and the government’s intervention? Pull yourself up, dust yourself off, hold your chin up high and swear you’ll never drink so much again. Wait, that’s a totally different (but related) topic. Back to the money thing: We’re looking at the new year, so what better time to take charge instead of being charged? The bank is totally not the boss of you.

So, some Money 101. This is advice akin to saying if you want to lose weight, eat less and exercise more. In other words, obvious. But sometimes success is a matter of hearing truths repeated until they sink in and affect behavior for the better.

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