Photo by Medmoiselle T

A recent Yahoo! Finance article highlighted the new tricks that banks are using to increase their profit margins.  Here’s the link: Overspending on Debit Cards is a Boon to  Banks

People who use debit cards for purchases are making the banks smile.  The reason is that many people don’t have enough in their checking account to cover their debit card purchases.  This allows the bank to charge an overdraft fee, which increases the bank’s profits.  Yay!  I knew that bailout money was going to a good cause.  But, you might be thinking, shouldn’t the banks try to help their customers by limiting their overdrafts?  What, are you a communist or something?

Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.

Holy smoke!  $27 billion made off of people not paying attention.  Here’s some good advice: PAY ATTENTION! Don’t be a spend-first sucker.  Keep an eye on that checking account balance, because the banks have bent the rules to get even more creative:

Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.

“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

I guess that would be considered “thinking outside the box” by the banks.  They’ve just found another way to exploit their customers, the same people who will foot the bill for the financial bailout.  No good deed goes unpunished.  They’ll even let you keep on spending because:

In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.

I rarely make debit card purchases.  I like to use my credit cards to rack up rewards points, and then I pay off the balance the next month.  But debit cards don’t offer the same protections as credit cards, so be careful.  Just look at the case of this poor schlub:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.

How nice, they notified him afterward.  And they dragged their heels on clearing his deposit.  So for $38.14, he got a very expensive cup of joe from Starbucks.  Let his $238 in overdraft fees be a lesson to us all: be careful when making debit card purchases, and for Pete’s sake, check your balance first.

Has anyone out there fallen prey to the overdraft fee game?  Check out this book for more ways the banks try to screw us:

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