Debit cards are something that Clark has worried about for years. Years ago, the powerful banking lobby got one set of rules for credit cards long before the first debit cards came on the scene. That effectively made debit cards exempt from many of the protections afforded to credit cards.
Banks will approve transactions using a debit card when they know you have no money. They want to generate overdraft fees, which are a massive profit center.
The New York Times reports that banks now for the first time make more money from debit overdraft fees than from all penalty fees combined on all credit cards in the United States!
Bank of America was one proud pioneer of a computer program that automatically juggles your daily transactions to generate the most overdraft fees possible. Now three-quarters of all the giant banks approve overdrafts in a similar way. According to the
FDIC, giant banks are getting an effective interest rates of
3,520 percent with these overdraft fees!
Meanwhile, Wells Fargo has a system where branch managers have their pay reduced for making too many concessions to customers complaining about overdrafts on debit cards, according to the same
New York Times report.
Of course, let's not overlook the personal responsibility issue here. If you don't overdraw your account, you don't get ripped off. So keep close tabs on your money! If you don't want to keep a running tally, then go to a cash-only lifestyle.
As previously reported, Bank of America will begin allowing you to
opt out of their overdraft trap, but you've got to specifically request it.
