Summer is officially over, and this season tends to be one of the most hectic in terms of purchases. Whether shopping for school supplies, uniforms, or kids’ clothing, or grocery shopping for all the holidays this month, taking that wallet in and out of your pocket can become not only your exercise for the day, but a drain on your finances. Some people use credit cards to pay for their purchases to make life easier, and they just wait for the bill to come to pay it all off with a check. But there are also many who use debit cards to pay for their purchases so that they may pay as they go, with the convenience of deducting the purchase amounts directly from their bank accounts at the cash register rather than having to run to the bank or ATM machine to withdraw cash.
The debit card came into play years ago as a tool for consumers wanting to utilize a product that would automatically deduct sums from their existing bank accounts when they shopped, without the charging process of a credit card. Originally, a debit card would allow you to purchase with the ease of a credit card but would limit you to the amount existing in your bank account so that you would not get burdened at the end of the month by unpaid bills, as is the process with a credit card. As time went on, the banks found they could earn more money adding overdraft protection to the debit card, essentially allowing the user to go beyond the amounts existing in their bank accounts up to whatever amount the bank approved the debit card holder for an overdraft dollar limit.
However, what transpired as a result of this change was that although people loved the use of that overdraft protection, each transaction beyond the amount of their existing bank balance would cost them around $35 a pop, even if the transaction was as little as 10 cents over the limit. The most frustrating part of this situation was that debit card users were not even warned when they reached the limits of their own bank balances before they authorized these overdrafts, and so some unknowingly continued to utilize the debit card over and over again beyond the limits of their bank balances, accruing fees in hundreds of dollars for expenditures of less than $100.
The banks in turn would say that it is the responsibility of each person to be aware of the amounts available to them in their account balance at any given time. While I am sure we all agree that this is true, I think that if the banks are charging $35 per transaction for overdraft, they could also afford to provide a warning to borrowers (I say “borrowers,” since that is essentially what you become when you start utilizing any overdraft offers from the banks) that they have exceeded their existing bank balance and that continued use of the debit card will activate fees. What is ironic about the entire process is that the banks started making huge amounts of money, exceeding loan shark levels (some say beyond 3,000%), and until now nothing has been done to either limit the percentages they realize from this operation or to monitor how they issue them and if it is done fairly.
Now that the Feds have more time to focus on issues other than bank bailouts, the complaints are getting louder and louder for Congress to put some regulations in place to protect consumers from the runaway charges and manipulation of posting practices that the banks now utilize for their debit card programs. While debit cards provide an important service in our society, there must be more consumer protections in place to make sure naïve users are not taken advantage of. In the interim, all you debit card users out there, take care!
Shana Tovah U’Metukah to all!
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker (Anessa V Cohen Realty) and a licensed N.Y.S. loan officer (FM Home Loans) with over 20 years of experience offering full-service residential, commercial, and management real-estate services as well as mortgage services. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa@AVCrealty.com