Outrageous Overdraft Fees Finally Meet their Match
If you’ve ever been slapped with an overdraft fee, odds are you (a) didn’t see it coming, and (b) ended up paying more in fees than you originally tried to draw. Banks count on their customers’ lack of understanding, and often partial monitoring of their accounts, to charge outrageously high overdraft fees up to $38 per transaction, again and again. Unfortunately, many of us are no strangers to these fees — and their diligent payment generates billions of dollars annually for banks, indicating they’re in no rush to forfeit them.
Is there any benefit to overdraft fees?
By design, overdraft fees are charged to discourage bank customers from overdrawing their accounts; essentially, it’s a penalty for failing to live within your means. These automatic fees often increase incrementally on a daily (!) basis, and can compound to a staggering annual interest rate of 3500%. Though this should serve as a deterrent, the fact is that most consumers go about their lives unaware of just how much money is in their checking account every moment, which can lead to honest mistakes. Despite knowing this, banks make little to no effort to notify customers of impending overdraft.
Just how common are overdraft fees?
Perhaps you’re under the impression that overdraft fees are the share of irresponsible, errant young folks, or financially unstable individuals. In actuality, they affect a broad cross section of society, including those who actively try to avoid overdraft fees. Sometimes, it’s a simple matter of timing, as one Change user recently put it: “I once deposited a $900 check, then proceeded to charge some things on my card. Well, the charges went through first, along with 6 or 7 overdraft fees and then the check posted”.
Another important question is the bank’s responsibility in these matters. If a person is overdrawn, or close to it, should the bank continue approving the charges — only to cause fees to snowball? A Change user describes not being aware of being overdrawn, because the charges kept clearing: “I just recently was charged overdraft fees because my bank keeps clearing charges even though my account was already overdrawn.” What with online banking, push notifications, E-mail and text messages, you’d think the bank would’ve sent an alert.
Of course, sometimes, fees can be seen as logical punishment for irresponsible spending, but how harsh should these penalties be? One Change user trying hard to recover financially described it as a ‘vicious cycle’: “It was my own fault, but because the fees were so high and came multiple times I simply could not keep up.” Similarly, there’s the matter of proportionality to consider — should a $10 deficit be treated the same as a $5,000 one? If you ask your bank, the answer is yes: “I once got $105 draft fees from three separate transactions, which the total of them are around $10!”
Something’s gotta give
We’ve established that overdraft fees are lucrative enough for banks to never get rid of. We’ve also established that these fees are a pain in the you-know-what. At Change, we’ve solved the equation — and you literally owe it to yourself to try it: Predictive Overdraft Protection. In a nutshell, we developed an algorithm that analyzes your spending in order to predict when you’ll be overdrawn (and by how much), alerts you to it with time to correct course — and even extends you a small loan to cover projected overdrawn funds until you make up for it. The tool not only prevents overdraft by increasing your awareness to its risk, but should you become overdrawn, it can save you up to 80% of the fees you would’ve otherwise paid to the bank.
We developed the tool knowing that receiving an alert prior to becoming overdrawn could potentially be a more powerful educational tool to curb unwise spending. Our goal is to dramatically reduce overdraft — and overdraft fees — among our users in the coming year. As always, Change won’t charge you for this feature. Here’s to an overdraft free 2017 — and if we can’t have that, let it be free of fees!
Originally published at gochange.co on December 25, 2016.
Change develops an Invisible Service that links to bank and credit card accounts, analyzes money transactions and discovers bad financial behavior (symptoms). It then matches those symptoms with behavioral treatments that are executed through smart sms messages (nudges).
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