Do you know that Americans pay $17 billion in fees every year because of overdraft programs? That estimate comes from the Consumer Financial Protection Bureau.

Often marketed as a way to help consumers, overdraft programs really help the financial institutions.

A consumer incurs an overdraft fee when he makes a purchase that costs more than the amount available in his checking account, but the bank allows the transaction to proceed. The penalty for spending more than he has available in his checking account is usually around $35.

Overdraft protection programs are marketed as a way for consumers to avoid the embarrassment of having a transaction declined at a point of sale. For instance, if a consumer with overdraft protection buys a $10 fast food meal with a debit card, but only has $7 available in the checking account, the consumer’s bank will allow the checking account to go into default for $3 instead of declining the transaction.

As a result, that $10 could end up costing $45 after the bank charges a $35 overdraft fee for the “convenience” of allowing the $10 transaction to proceed.

By law, financial institutions are supposed to obtain a customer’s approval prior to enrollment in an overdraft program, but many consumers say they don’t recall ever being asked. Voluntary overdraft programs cover individual point of sale purchases made with a debit card.

Even if a consumer opts out of overdraft protection, financial institutions can still charge overdraft fees for checks that are written that cause the account to be overdrawn and for recurring debit transactions, such as automatic subscription renewals.

Communication Lacking Regarding Overdraft Programs

A study by Pew Charitable Trusts found that three out of four customers who incur overdraft fees don’t know they have the right to instead have a transaction declined if the funds in their account are insufficient to cover a debit card purchase. In fact, one in three consumers who incur overdraft fees see the overdraft programs as a means of borrowing money.

Consumers don’t seem to completely grasp that the banks are making money at their expense, according to the study. Customers who have approached a bank representative and discussed the ins and outs of overdraft programs continue to have a vague understanding of the programs, says Pew.

If a consumer chooses not to participate in an overdraft program, the bank will simply decline a onetime debit or ATM transaction if not enough money sits in the account to cover the requested transaction. There is no fee if the bank declines the transaction, but Pew found that 54 percent of consumers incorrectly think they would incur a fee.

Pew also reports that 80 percent of people who incur repeated overdraft fees have struggled to pay their monthly bills at least once during the past year. A full 38 percent indicate their monthly income varies, a factor that Pew says other research has found affects a household’s ability to consistently count on being able to pay all of their monthly expenses.

If you have been charged exorbitant fees from overdraft programs that you did not enroll in, you could be eligible for compensation through legal representation.

ATTORNEY ADVERTISING

The choice of a lawyer is an important decision and should not be based solely on advertisements.