Debit cards become a danger to consumers

By Brittany Lavin
March 15, 2007

Megan McGirr

The use of debit cards has prompted banks across the nation to make high-cost overdraft loans even more costly. A report, “Debit Card Danger,” was released by the Center for Responsible Lending and analyzed the checking accounts of over 5,000 customers of some of the largest banks in the nation.

“Banks are raking in fees from unwitting customers who would not overdraft if given a choice,” Eric Halperin, co-author of the study, said in a press release by the Center of Responsible Lending on Jan. 25.

The study found that 46 percent of high-cost overdraft loans are generated by debit card purchases and ATM withdrawals while written checks are responsible for more than one quarter.

The most expensive way to overdraft is by making an in-store purchase, which costs $2.17 for every dollar borrowed and 86 cents for check-triggered overdraft loans.

Instead of warning customers of the possibility of overdrawing, banks now regularly approve the transactions, cover the expense and charge their heavy fees.

Most consumers have no idea that this is taking place, which is a great concern for Halperin.

“If you ask people on the street what would happen if they tried to make a debit card purchase and their account was empty, most people assume the bank would deny it,” he said.

When asked, 61 percent of those people wished the bank would.

“This is the first I’ve ever heard of it,” John Jonas, a sophomore English and communication major, said. “It’s pretty sneaky. I’ll have to be more aware and careful about how I use my card.”

“I’ve never overdrawn my account before, but the fact that banks are just letting it happen doesn’t really surprise me,” Andrea Gallagher, a sophomore exercise science major, said.

CRL has put forth several proposals to deter this from happening. These include requiring banks to warn the customers when they are about to overdraw from their account and give them to choice to either proceed or cancel the transaction. Also, to allow the banks to cover the overdrafts without any warning, but only if the customer has consented in writing.

“We should all be aware of how much money we have in the bank, but we also have the right to be warned when we don’t have enough,” Jessica Gruber, a freshman English and secondary education major, said.

“It’s definitely something for college students to be concerned about,” Jonas said. “I know that I sometimes spend without much thought and I don’t think any of us want to be in more debt then we already are.”

Brittany Lavin

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