With all the talk these days about Payday loans, banks have jumped on the band wagon touting the negative things about Payday loans.
Yet if we pull back the curtains on the banking industry, are they really any better? Washington Mutual, yes, my former employer offers almost everyone who opens an account a $100 overdraft limit.
If your checking account is handled well, it quickly increases to high amounts, ranging from $500-$1500 on average for the accounts I worked with.
This simple ‘overdraft limit’ allowed a consumer to make one small error in their checkbook register and bounce multiple checks which were in turn paid by the bank. The sneaky part is they were paid into the negative up to the limit of that overdraft limit and charge a large fee for each item that was presented.
Daily I viewed accounts that had been charged $100 or more in fees, and the customer wasn’t aware of it for several more days until the notice arrived in their mail box.
Is this any different than what a Payday Loan company charges? The main difference that I see is the consumer is aware of the fees up front! Not after the fact!
I suspect if we did the math, these overdraft charges far exceed the calculated interest rate on a Payday loan.
An overdraft account is not exclusive to just Washington Mutual. I contacted several large banks to comparison shop products and was surprised that most financial institutions offer a similar program. At the time I used WAMU, Wells Fargo, Bank of America, and US Bank.
As a consumer, you need to be aware that these accounts are out there and you probably have one without realizing it. Automatic Teller Machines also known as ATM’s often allow you to access those funds.
The average cost of an overdraft or returned item fee ranges from $25 to $35 dollars. The actual cost of the overdraft or returned item to the financial institution is well under $5. Most financial institutions have trained their staff to tell you the following if you complain:
* We only reverse fees if it is a bank error.
* The fee is only there as a deterrent, to encourage people not to overdraw an account.
* Perhaps if you have a line of credit attached to your account you could avoid this in the future.
The last was always my favorite. Bank employees have been trained to be excellent sales people over the years, and the last line will usually clinch the deal.
Although most people don’t realize it, a ‘free’ checking account at Washington Mutual was the biggest money maker for the company when I worked there. It well surpassed income from loans.
As a consumer, use caution with a checking account. We are becoming a checkless society, but even if you don’t write checks you still need to maintain a check register and balance it.
Balancing your checking account each month, as well as your credit card statements may protect you from overdraft and over limit fees. It will also help you stop identity theft in its tracks. The average person that regularly checks over their accounts each month is much more likely to notice something wrong and get it reported as soon as possible.