You have to love our oversight system in this country when it comes to abusive consumer practices. Politicians and federal regulators are very slow to move. We saw this with the recent actions taken to reign in credit card abuse. The politicians and the federal regulators allowed these abusive practices to go on for a long time and then they reacted with some watered down regulations. In most cases, these regulations occur in the same sequence.

First, it is the federal regulators who do the dirty work. In most cases, the politicians don’t want to get their hands dirty clamping down on those who help fund their campaigns. Then after the federal regulators pass the regulations, the politicians express outrage and then turn them into laws. This way they are only enforcing something that has already been done.

Well, that happened with credit card companies. Now it is happening with the banks. Banks are raking in roughly 24 billion dollars a year in overdraft fees from these programs that allow you to go into overdraft when you use your debit card. Here is the scenario – you are at the grocery and unbeknownst to you there is only $10 in your bank account. You have a bill that totals $50 – you swipe your card and the bank approves the overdraft and charges you $17 to $34 in overdraft fees.

Federal regulators passed new rules last November requiring banks to ban these practices. Now if you want the overdraft protection, you have to opt into the program.

The Center for Responsible Lending released a survey that showed that 80% of those surveyed would want the debit card purchase denied rather than allowing it to go through. The same survey showed that the average overdraft was only around $17. You tack $34 on to that amount and that overdraft protection is costly.

Just like I have illustrated with the credit card act, these new rules don’t go far enough.

These rules should be written to tell banks what they can and cannot do when it comes to overdraft protection. As long as there are loose ends, banks can resort to deceptive tactics to get consumers to sign up for these programs.

How about disallowing overdrafts all together? This is where the consumer protection system fails to do its job. Why don’t the federal regulators just disallow these programs all together? Overdraft protection is just another form of loan sharking. Technically you are borrowing the money from the bank because they are paying something with the bank’s money. So, if you went over by $20 and they charged you $34 in a fee, technically it is the equivalent of a 170% interest rate.

So do yourself a favor and don’t opt into these overdraft programs and when a bank wants to pitch you a new service, make sure that the overdraft service isn’t buried in the details.

Tags: banks, Bob Brooks, Credit CARD act, federal regulators, overdraft fees, overdraft protection, politicians