Overdraft Fee Irony: Bank Causes Overdraft, Then Charges for it

July 29th, 2010. By Hunter West

File this one under “WTF”.

Devon Donovan was just a kid with some cash and a savings account. Cash from hours worked as a lifeguard, when she could have been swimming. Hours working as a babysitter, when she could have been hanging out with her friends. When she was given money for her birthday and at Christmas, she put it away to save towards school trips.

In other words, Devon was a kid who got it right. She didn’t spend wildly. She saved her money. And when she went off to college, she kept what she assumed was a couple of hundred bucks or so in that account to save for a rainy day.

That’s what savings accounts are for.

Instead, a bank unjustly robbed her of her savings and the message was clear: we don’t care about your laudable savings habits, we couldn’t give a flying fig that you’re a kid with the right idea and we couldn’t be bothered to acknowledge such good behavior.

Legally, Citizens Bank was in the clear. But morally, is it right? Is it fair for any bank to do what Citizens Bank did to a citizen who deserved better?

Citizens Bank decided, starting in 2007, that it would begin charging a monthly fee of $5 for balances under $500. The notification, as it turned out, was a small line at the bottom of a statement from November 21^st, 2006 referring to the new policy taking effect on January 8^th of the New Year.

There were also new limits on monthly transactions and fees for what were described as ‘excessive transactions.’

Obviously, Devon did not see the innocuous notification on her bank statement. Besides, she had—what, maybe $100 in her savings account? $200? It just sits there. She’s at college. She doesn’t draw on the account. There is no excessive activity. The bank does nothing to maintain the money.

So Devon goes off to college, thinking that all is well. Unbeknownst to her, Citizens Bank quietly deducts—according to the terms of their new policy–$5 per month from her babysitting and lifeguard kitty for having a balance below $500.

Those deductions would have been duly reflected on the monthly bank statements mailed to her parent’s home. But Devon wasn’t there, and why should her parents open her mail? It’s a savings account, for gosh sakes. It’s harmless. There’s no activity.

Little did they know…

The situation finally saw the light of day when an official-looking envelope addressed to both Devon and her mother arrived. In the communiqué, Citizens Bank revealed that not only had the account’s balance been reduced to zero, but also a $6.99 DAILY overdraft fee had resulted in a bill for $52.

Please pay. Thank you. Love, Citizens Bank.

What the hell did Devon, a good kid with the right attitude towards money, do to deserve such shoddy treatment? What do WE do, to deserve that?

Here’s something that happened to me recently.

The other day I went in to close out an account. I had opened another, at a different bank, and had to wait a couple of months to ensure that the expected changes to direct-deposit and the like had taken hold. After all, you don’t want to close down an account that somebody is trying to put money in for you…

I kept sufficient funds in the account to cover the monthly service charge of $12.95 while all this was going on. I actually had $13.00 in the account. When the last service charge had been debited, I was left with a balance of $0.05. Five cents. That was the balance when I went into the month I had identified as the month I was actually going to shut it down.

Which I did on the 14^th. I was even going to let them keep the five cents.

The attendant at the counter was very polite—even when she informed me that I would have owed the full service charge for the month.

Pardon?

“That’s policy,” she said. It appears as though the service charge, which comes out of the account at the end of each month for the preceding month, is apparently still applicable even if you don’t have the account for the entire month: in my case, 16 days.

There’s been no activity in the account for some 45 days. Okay, so what are they charging me for? A paper statement and a stamp? That costs $12.95? And as I was closing down the account, there would be no need to produce one for that month…

“I’m sorry, but that’s policy, sir”

At that point, I quietly pointed out that I carried no cash. Neither did I have another account at that bank. Her insistence on making me pay a $12.90 service charge (as I had five cents already…) would require me physically going to another bank branch in the city and withdrawing $12.90, or putting $12.90 on my credit card to pay for…well…no service.

At which time I politely, forcefully but respectfully asked her to reverse the service charge.

Which she did.

I thanked her and took the shiny nickel as my balance that I had to sign for that I had duly received.

I ask you—on behalf of myself, and people like Devon and everybody else who deals with a bank.

Who the hell do they think we are?

What gives a bank the right to, at will, add or increase fees? And where is the obvious, formal notification of such changes? A line at the bottom of a statement? C’mon. A brochure? Who reads brochures? Does the bank read brochures, or inserts? Who has the time?

US Senator Charles Schumer is making that very point—that notification for new fees must be undertaken in a clear and obvious manner.

Hear, hear. But what about those fees?

Why does a bank feel that it has to charge $5 for any account that sits below a $500 balance? What’s the difference? The fee, in reality, appears to be a simple ploy to prompt savers to put more money in their accounts. It’s a strong-arm tactic for additional dollars, and if you don’t—it’s gonna cost you five bucks a month.

What a great message for a kid with a savings account.

Gone are the days when strutting into a bank with your mom and dad, taking in the newfound corporate sights and sounds, and the musty smells of the moneyed surroundings, clasping tightly onto your piggybank. A time-honored right of passage.

But if you don’t have $500 in your piggy bank, then the bank is going to take $5 away from you every month.

Nice. And for what?

And if that balance gets down to zero—as Devon found out the hard way—the bank is going to ding little Jacob $6.99 each DAY for the overdraft the bank caused in the first place.

This is America?

What a pile of crap.

Where is the government? Why don’t they insist that fees have to be connected with some kind of value for the service, or actual cost to the bank to provide that service. Does it cost more for a bank to manage and monitor an account with $499, than an account that has $501 in it? And why does that cost five bucks a month?

And when that account gets down to zero, does it really cost the bank $6.99 per DAY to have that account sit at zero? Oh, and by the way…. that $6.99 overdraft fee…who is doing the overdrafts? Not me. Not Devon. Not Jacob, or Jodi, or Sarah, or Fayed or Jessica who saved her lemonade money for 7 years…

It’s the bank, in this instance, causing the problem and then charging the customer for the solution.

Is it that bad in the banking industry that they have to charge so many fees for service, that the number of services cannot keep up with the fees charged?

Or is this just pure and unfettered greed?

Obviously, the banks need us. If we stopped borrowing, stopped saving, stopped using checking accounts and stopped having the need for mortgages, the banks would die.

But much as we like the idea and the ideal of paying cash for everything, eschewing credit and keeping our worldly currency stuffed in a mattress, few can buy a car or a house that way. We need the banks for those big-ticket items, and there are few alternatives.

They obviously know this. While they need us, we need them more it seems.

And thus, they can’t wait to screw us any way they can.

Even the kids, and their piggy banks.

For shame.    

Tags: Banking, Citizens Bank, Overdraft fees

This was posted on Thursday, July 29th, 2010 at 1:07 pm and is filed under Consumer Fraud, Emerging Issues . Feel free to respond, or trackback. Read our comments policy.