If you’ve ever been hit with an overdraft fee on your personal checking account, you’ll probably never forget it.
The Center for Responsible Lending found that banks collect $14 billion a year in overdraft fees — and another $3 billion for insufficient funds.
What is an overdraft fee?
Banks charge an overdraft fee if your account doesn’t have enough money to pay for something, but the bank decides to pay for it anyway.
Here’s an example: If you use your debit card to buy lunch for $10, but you only have $8 left in your account, the bank will pay the $2 difference if you have overdraft protection.
This might seem like a good thing because it will save you the embarrassment of being declined, but just wait until you get your statement.
In addition to that $2, you would be charged an overdraft fee — typically $35.
And overdraft situations are not restricted to when you use a debit card. They can also apply to ATM withdrawals, checks and automated bill payments.
Reforming the system
In its new report, the Center for Responsible Lending says these fees are a huge drain on consumers, often times affecting the same people over and over.
It’s so bad that some customers are being forced to ‘unbank’ altogether.
The group wants federal regulators to put an end to excessive overdraft fees and limit them to one per month and six per year.
Never pay an overdraft fee again
If you don’t want to be charged an overdraft fee, there’s an easy way to avoid it. Just tell your bank you don’t want overdraft protection. That’s your right as a consumer.
So, if that were the case, your debit card purchase would be refused if you don’t have enough money to cover it.
And even if you took the bait and currently have overdraft protection, it’s never too late to change your mind. Go back to your bank and tell them you don’t want their protection.