NEW YORK (CBS 2) — Up until now, overdraft fees have been a huge source of income for banks. But new laws in effect soon will change all that.
Still, many consumers may need to contact their banks.
CBS 2 consumer reporter Kirstin Cole has more on the end of automatic overdraft fees.
Every year banks make an astonishing $24 billion from customers who overdraw their checking accounts.
“Even if it’s for a $1 you still have to pay the $35,” said Monica Aviles of the Bronx.
“It’s something that I complain to the bank and I’ve thought about switching to a credit union because they’re a lot better about fees,” added Melissa Farrar of the Upper West Side.
All that will change on Sunday. New federal laws abolish automatic enrollment in overdraft protection for ATM withdrawals and debit card charges, meaning transactions with insufficient funds will be declined.
To avoid the problem, customers need to specifically request overdraft protection. But they’ll have to pay bank fees.
It’s a move consumer groups say will protect the most vulnerable — 16 percent of all account holders end up paying 74 percent of all overdraft fees. And 5 percent of all accounts are overdrawn 20 times or more a year, spending $1,600 in fees.
“The lowest income people who signed up for checking accounts were being given accounts that automatically had these overdraft accounts and wouldn’t know until they went into overdraft that fees were associated with the overdraft,” said Phyllis Salowe-Kaye.
Banks have been scrambling to educate customers before overdraft is turned off, with many offering extra warnings at ATM locations, through mailings and at bank branches.
Bank of America, the nation’s largest debit card issuer, is joining a handful of other banks and completely banning all debit card and ATM overdraft fees, but what it means is they’ll be losing out in billions of dollars in fee revenues.
That has many fearful of what banks will hit them with next.
“They’ll have to find other ways to make money then, which they will,” said Dave Przywara of Hell’s Kitchen.
“They need to be aware, very specifically, of what fees and charges are associated with these overdraft accounts,” Salowe-Kaye said.
Which means spending time reading the fine print.
Not covered by the new rules are paper checks and automatic payments. Most of those will still be covered for a fee.