Many of us have noticed the trend of bank overdraft fees steadily increasing over the past few years. A bounced check used to cost around $10 but now is more commonly around $35 per transaction. There are overdraft protection plans which only help us build up more and more debt. So what can be done? Many think that the banks should notify consumers of a transaction that is about to cause an overdraft before the transaction can be completed. Banks say that it is just too technically difficult. Banks are viewed as institutions provided to us solely to protect our money. In fact, they are a business and aim to turn a profit at some point. Banks are now being accused of processing large transactions first so that all those little ones trickling in can each incur its own overdraft fee. It has become easier than ever for consumers to rack up hefty fees now that we are using not only checks, but we’re also taking ATM withdrawals, using debit cards, making credit purchases and other electronic payments such as bills and automatic withdrawals.
Banks still hold firm that only the consumer can actually know what checks they have outstanding and what transactions they’ve made that haven’t cleared yet. Maybe they’re right. We have to take some responsibility for knowing what funds we have available in our own accounts. Modern conveniences such as check cards and ATM machines need to be taken as seriously as writing a check used to be. If you don’t keep record, then you have to expect at some point, you’ll be paying a fee.
Besides the increase in the amount, if you feel that you are paying more fees now than you were in years past, you may be right. Most banks now engage in the practice of “courtesy overdraft". Even if you didn’t sign up for any overdraft protection, banks may still approve transactions over the amount that you have in your account and then charge you an exorbitant fee for the convenience. Banks say that it actually costs you the same as an old bounced check plus the merchant’s fee, minus the hassle for you and the business. What may not sit right is that courtesy overdraft is also available on debit or credit purchases as well as ATM transactions, where the bank knows that you don’t have enough money to cover it. Again, the bank needs to make money to continue to provide all of its services and be profitable.
To eliminate future charges, we’re just going to have to learn to keep track of our many transactions. Ask your bank about other options that may be cheaper than paying overdraft charges. Most will waive fees for first-time offenders and offer decent overdraft protection plans or a transfer from savings in the event of a miscalculation on your part. If you know you’re going to need to overdraw your account and don’t want the fee, sometimes a payday loan is a faster cheaper way to go.
It is apparent from reading the newspapers and browsing the internet, that payday lending has a lot of critics, and receives quite a bit of negative publicity. The arguments they make against the industry are that the interest is outrageous, that they prey on the poor, uneducated masses, and that they trap people in a cycle of debt that they cannot get out of, except through bankruptcy.
Let us examine these arguments a little closer. A common argument is that the interest rates on a payday loan are extremely high, usually around 500% - 600% APR. The first problem here is that while payday loan companies are required by law to disclose an annual percentage rate, they are also required by law not to let their customers have loans out more than 12 weeks as a maximum. In general though, the average payday loan fee is less than $20.00 for loans of $100.00. $20.00 simply is not an "outrageous fee" to get a little money in a hurry.
In my line of work, I occasionally will look over bank statements with my customers who are frustrated with their bank of choice. I had one customer whose account had a transaction put her available balance at -$1.17. The bank then charged her a $35.00 overdraft fee. Her account was now at -$36.17. The bank then did a complimentary overdraft protection transfer from her credit card account of $40.00 to put her back into the positive. However, by transferring the $40.00 from her credit card account, it caused that account to be over limit. She was then charged a $39.00 over limit fee on her credit card account. Essentially, she just borrowed $1.17, and her fees added up to $74.00, and her bank account was at $3.83, essentially ensuring future overdraft charges, unless she could wait until payday without needing any more money.
I showed her how a payday loan could have saved her quite a bit of money and stress. Let's say she borrowed $100.00 at a cost of $20.00 until her payday, and deposited that $100.00 in her account before the above item was presented. Her account would be at $98.83, giving her some breathing room until payday. It is obvious, how in this case, a payday loan is the better choice. Additionally, it is obvious, what her bank (which does not have to give an APR on its fees) would prefer her to do. While this is just one specific example, I see similar scenarios every single day.
Banks charging outrageous fees, while claiming they are doing it with the customer's best interest as their goal. If the critics want to talk about companies preying on the poor and uneducated, then they need to put banks and credit unions on the top of their lists. It would seem that those who use a payday loan appropriately are acting more educated about their finances than those who let their banks handle their finances for them. Also, if it were true that payday loan companies put "people on the fast track to financial ruin," as one critic said, how is it, that they stay in business?
The idea of a cycle of debt is misleading. You either are going further into debt or climbing out of it. If a payday loan company was putting people more into debt, eventually they would run out of customers, as customers run out of money. And a company without a customer base will not be in business long. The number of successful payday loan companies that we see would indicate, as they claim, that a majority of their customers pay off their payday loans within a week or two, and move on.
Maybe it's time for the critics of payday loan companies, to acknowledge that some of their attacks are unfounded. We should be educating people that a payday loan is an available and better option when it comes to their finances, rather than trying to shut them down. By trying to limit their financial options, you are not doing them any favors; you simply leave them no choice but to pay, in most cases, a higher amount in fees by using overdraft protection. There is a reason that so many people choose payday lending over other alternatives, and that reason is that it is a less expensive, less stressful way to go.
Both Mike Smith & Michael New Jr. are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Mike Smith has sinced written about articles on various topics from Financial Planning, Debts Loans and Credit Loans. Mike Smith is the Online Marketing Strategist of, a company that can provide a payday loan, cash advance, or payday advance to individua. Mike Smith's top article generates over 49500 views. to your Favourites.
Michael New Jr. has sinced written about articles on various topics from Finances, Payday Loans and Debts Loans. Michael New Jr. is an authority in the financial industry. He has written hundreds of articles relating to consumer services and .Contact Info:Michael New Jr.(. Michael New Jr.'s top article generates over 33100 views. to your Favourites.