Debit card dilemma

The center blames banks for overdraft charges, calls for change.

By Lindsey Underwood

Published Feb. 13, 2007

Typically, banks tout checking accounts with debit cards as a convenient and easy-to-use method of spending. But many consumers and the Center For Responsible Lending have found debit cards can produce more stress and cost more than other accounts.

The Center for Responsible Lending published a report chronicling the trend in banks that use debit cards and overdraft fees to generate revenue. The report suggests banks should alert consumers when they are getting close to reaching a zero balance, rather than letting the transactions go through.

The study found most consumers would prefer to have banks alert them or deny the transaction instead of allowing the transaction to go through. The Center for Responsible Learning reported that in-store purchases result in the highest dollar-per-dollar cost, with most costing around $2.17 per dollar overdrawn. This provides the bank with an easy source of revenue.

Sharon Reuss, a spokeswoman for the Center for Responsible Lending, said her organization encourages consumers to blame their banking institution rather than themselves for many of their problems with overdrawing.

"The position we take is it's not necessarily the college student's fault," Reuss said. "It's extremely difficult for consumers to accurately track their balances."

Generally, public perception blames the individual consumer for failing to keep track of their balances, and banks tend to do the same.

Bank of America spokeswoman Diane Wagner said the bank encourages its customers to track their finances with online banking. It also offers special services for student accounts, specifically with its "stuff happens card," which allows students one chance to refund an overdraft fee they have accrued.

"We also offer a Student Financial Handbook on our Web site which teaches basic financial tips, such as how to write a check and basic things about credit history," Wagner said.

The "stuff happens card" inherently acknowledges the high cost of overdrawing, yet student consumers are only forgiven for the offense one time.

Office for Financial Success Director Mark Oleson said he encourages students to take advantage of the free individual counseling the office offers. Even so, the Center for Responsible Lending stresses the consumer can take precautions but still fall into financial trouble with debit cards.

Reuss said the goal of the report is to create institutional change. It has had some success with U.S. Rep. Carolyn Maloney, D-N.Y., who is planning to reintroduce a bill requiring banks to offer more debit card protection for customers.