Feeling Wronged by Too Many Overdraft Fees?

by
Adam Rust

WiseWage helps unbanked workers avoid check cashing fees by using accounts to accept wages by direct deposit.

However, WiseWage can also help people who already have bank accounts.

Card accounts at WiseWage will never have overdraft fees. We guarantee this will be the case for all of our products. None of the prepaid debit cards, debit cards, and payroll cards on WiseWage have overdraft fees.

With a few exceptions, banks can rely on overdraft fees to generate lots of revenue. How much? According to the Moebs consultancy, banks (and credit unions) charged their account holders $33 billion in overdraft and NSF fees in 2016. 

To put that number into context, consider the fact that there were 113 countries whose annual GDP fell below $33 billion. 41 million people are living in Uganda – and their total economic activity in 2016 fell below $33 billion. The same is true for the populations of Bolivia, Paraguay, and Cameroon.

In fact, there are only 97 countries in the world whose GDPs exceed the sum of overdraft fees paid by Americans in 2016.  

Those results so high because banks charge so much for each incident. The average overdraft fee (CFPB) was $34. Some banks impose costs of as much as $41 per occurrence. That is in spite of the fact that the average amount of a payment that caused an account to go negative was only $24.

Picture of card
Picture of card
Picture of card
Picture of card

Without overdraft, banks would have to make over how they structure their deposit services programs completely. At some financial institutions, revenues from overdraft make up more than half of the revenues created by checking accounts. Most checking accounts are money losers for the banks that provide them. Indeed, were it not for a small share of customers that let tens of thousands of dollars idle in their checking accounts, they all might be deadweight.

As disturbing as it is that penalty fees prop up so much of the system, it is possibly even worse that so few of us shoulder so much of that cost burden. Only thirty percent of accounts have an overdraft in any given year. However, eight percent of those accounts overdraft more than ten times – and those individuals pay almost three-fourths of all fees.

Many people feel burned by their bank. Overdrafts drive people away from checking accounts, and as a result, a high percentage of the unbanked could also be labeled correctly as the “formerly banked.”   

Part of that burn comes from the complications inherent to check writing. The rules behind over-drafting are very confusing to many people. Most realize that banks must ask them to “opt-in” to have the function added to their account. However, fewer understand that even without opting in, it is still possible to receive overdraft fees. 

If a check settles at a point in time when there are not adequate funds to pay it, then the account balance will go negative. It is the same with any recurring electronic payment. If you have set it up so that your gym debits your account for your membership fee every month, you could get an overdraft even if you have not “opted-in.” Opting in only governs certain types of transactions.

The CFPB has worked hard to add protections to checking accounts. In that environment, many banks have decided to take away some of the more aggressive policies within their terms and conditions. However, some banks will not budge. So, while on the one hand, many institutions are reducing the number of overdraft fees they charge in one day or dropping their per-overdraft fee, others are maintaining the status quo. An example of a bad practice is high-to-low check order sequencing. If a bank chooses to pay your checks by the most significant size first, it will cause more overdrafts than if they were debited from the lowest amount to the highest amount.

WiseWage can take a person away from that stress. Our accounts do not have an overdraft functionality at all. You will never pay an insufficient funds fee (“NSF”) either. Your transaction will be turned down. If you schedule an electronic payment for a future date, your good funds balance will be debited when you schedule that payment.

Multiply the number of overdrafts a person makes in one year by $34, and you will get a reasonable estimate of how much he or she will save by switching.

Drop your bank account and head over to WiseWage for one of our safe accounts.

By the way – our accounts do not have minimum balance fees, either!  

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The Wisewage blog is not intended to describe any particular product mentioned elsewhere on the site. Please refer to each product page for details about any specific product. You can read our full legal statement about the blog here.
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