38.9 billion dollars…This is the estimated revenue that the banking system will make this year in overdraft fees. Overdraft fees have become an enormous revenue producer for banks.

The Federal Deposit Insurance Corporation estimates that 81% of all banks now allow customers to exceed their account balances. Most banks in America will automatically sign you up for overdraft protection. Then, you are protected against embarrassment in the event you pull that debit card out to pay for a transaction and there is no money in the account.

What’s worse, Bank of America has a policy that they will approve up to 10 overdrafts PER DAY. Last year, their policy only allowed for 5 daily overdrafts.

In a USA Today article, a spokesperson for the American Bankers Association states that banks adopted this policy as a “convenience” for customers because they didn’t want transactions denied. A survey conducted by the Center for Responsible Lending showed the exact opposite. The CRL states “most people would prefer that the bank deny their withdrawal or purchase when they don’t have the money to pay for it.”

Investigations into bank practices also have found that banks are clearing checks and debits based on the size of the transaction rather than the order in which they arrive at the bank. A big transaction has a better chance of putting a customer into an overdraft situation then a smaller transaction. So, if that $100 transaction puts a customer into an overdraft situation, the next 2 to 3 transactions of $10 to $15 will rack up overdrafts fees ranging from $50 to $70 dollars depending on the bank’s fee schedule.

In 2004, the Check Clearing for the 21st Century act has increased the ability for banks to clear these checks and debits much more quickly as well as to practice “check and debit ordering.” Prior to the passing of this act, the process of clearing transactions took a very long time. This act speeds up the process. However, the act does not force banks to post deposits at a faster pace.

It is no wonder that since that act has passed overdraft fees have increased almost 4 times. Banks made $10 billion in overdrafts fees in 2004 compared to the estimated $38.9 billion that will be made this year.

Don’t fear because Congress is going to fix this problem. They are trying to pass new legislation to make banks stop with this abusive practice. They will spend tons of time in committees and in discussion crafting out new legislation. Basically, they will waste a lot of time while looking like they are doing something for the American voter.

To our politicians in Washington who continue to allow these abuses to occur:

Pass a new law that simply bans overdraft protection. It can be a one page act. If consumers don’t have the money, then banks shouldn’t allow the transaction. It really is that easy.

Tags: account balances, American Bankers Association, Bank of America, Banking System, banks, Bob Brooks, Center for Responsible Lending, checks, Congress, debit card, debits, Deceptive Money, Federal Deposit Insurance Corporation, legislation, money, overdraft fees, overdrafts, Prudent Money, transaction fees, USA Today