Despite new law, experts say overdraft fees are still too highPosted: Updated:
LITCHFIELD PARK, Ariz - Robert Bartz does small repair jobs at home and because he's on a limited budget, he does what he can to cut costs.
“I don't have cable. I don't have telephone. I don't have any of those things,” he said.
But Robert can't do without his Sirius satellite radio.
So, he worked out a deal with the company to pay for the service month-to-month.
But in June, Sirius automatically renewed his contract and wound up taking out $132 from his checking account, which is an entire year's subscription.
Robert didn't have enough money in the bank to cover the charge.
“Course it automatically caused two overdraft charges and then I called them up and told them you need to get that money back in there right away," Bartz said. "Otherwise, they're gonna cause more overdraft charges.”
Each overdraft fee cost Robert $35.
In the days it took Sirius to return the money, Robert racked up more than $300 in overdraft fees.
He says the bank made the situation worse by taking out the largest charge first, the $132 fee from Sirius which caused smaller transactions to trigger more overdraft fees.
“All my other charges were 3, 5, 10, 6 dollars. All small charges, but I got hit for $35 for each one of those because they took $132 first,” he said.
Jean Ann Fox is with the Consumer Federation of America, an organization that recently investigated bank overdraft fees.
“It’s just mind-boggling,” she said.
Despite a new law by the Federal Reserve aimed at helping consumers curb overdraft costs, Fox says many banks have found a way to keep the charges coming.
She says banks get customers to sign up for overdraft protection, but bury the amount you're charged if you actually use it.
“Banks put on a hard sell trying to convince customer that they should opt in to overdraft coverage just in case your car broke down on a back road,” she said. “So they frighten people into signing up for the most expensive kind of lending that a bank does.”
If the overdraft fees aren't paid back in a matter of days, Fox says consumers, like Robert, are often hit with more fees.
“It’s like the clock is running on this and it's very expensive for consumers who tend to overdraw their bank account tend to struggle to make ends meet already,” she said.
Since the law took effect last summer, some banks have made changes by withdrawing charges from smallest to largest.
While the progress is positive, Fox says overdraft fees are still raking in billions of dollars for banks.
As for Robert, it took him weeks to pay off all his overdraft fees, fees that snowballed he says because of a sneaky and clever banking system.