Tell the Fed to Protect Seniors and Stop Unauthorized Overdrafts

Seniors who are heavily
dependent on Social Security pay nearly $1 billion a year in fees on
unauthorized bank overdrafts. Overall,
Americans who are 55 and older pay $4.5 billion in overdraft fees – $1.65 in fees for every $1 a lender advances them.

These are some of the key
findings in “Shredded
Security: Overdraft Practices Drain Fees from Older Americans,” the latest
report from the Center for
Responsible Lending (CRL) on the sorry state of the nation’s current
overdraft system. It costs people of all ages some $17.5 billion a year, at an average fee of $34 for
every overdraft, often with additional daily fees – even though they never
agreed to this “protection.”

Isn’t 18% Enough for a Bank
to Make?
There’s a case study in the new report about
"Mary," who paid $448 in overdraft fees for $210 in credit from her
bank. The bank repaid itself from her Social Security check, leaving her $20 to
live on and putting her further in debt every month. Instead, if Mary had an
18% line of credit for overdrafts, she would have paid only about $1 in fees.

I don’t know about you, but 18% seems like plenty of
interest to me – especially since the bank can re-pay itself from future
deposits, which are guaranteed to come from Mary’s Social Security. What
a rip-off!

Let’s
Put an End to It
While the news here is not
good, the timing is excellent: The Federal Reserve is considering changes to
the overdraft rules. Unfortunately, the Fed doesn’t go far
enough, only calling for banks to let customers opt-out of pricey overdraft
programs. Along with the CRL and over 80% of Americans, I believe banks should ask customers if they’d like to opt-in.

The vast majority of us want
to be warned when an ATM withdrawal or a debit card purchase would put us in
the red. That way, we can decide for ourselves what to do. The Fed should
require it.

I also want to see the Fed put an end to the
way banks maximize their overdraft fee income — by subtracting the checks with
the highest dollar amounts first, regardless of the order in which they were received,
and by holding deposits longer than necessary. All
of these practices put customers deeper into the red when they may not even
know they have a problem.

If the bank has hit you, your parents, or
your grandparents with unfair overdraft fees, the Center for Responsible
Lending wants you to tell the Fed about
it. I want you to speak up even if you haven’t been victimized by this
unfair system.

Sealed with a Kiss

This is what I sent to the Fed:

Please protect our seniors and
their Social Security checks from the excesses that leave too many of our elderly
with hardly any money, thanks to their overdraft “protection.” I call on you to
require lenders to:

1. Ask customers if they’d like to opt-in to the bank’s overdraft program.
2. Show how much the overdraft fees would be in terms of an annual percentage rate.
3. Warn people before they go into
   the red.
4. Stop “gaming the system” to increase overdraft fees by picking and choosing when checks and deposits clear. 

Feel free to copy and paste my message to the Fed here!

Nancy Castleman – Co-author of
"Invest in Yourself: Six Secrets to a Rich Life" and founder of Good Advice Press. Nancy has spent
the last 23 years teaching people how to get out of debt, save money, and live
better on less. She writes on all these subjects for CreditBloggers.com. 

Nancy Castleman