August 3, 2009
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News: Credit Unions Cashing In On Fees
In wake of new credit card reform that will limit banks from charging unfair and high penalties, many banks have turned to capitalizing on over draft fees for debit card use. Many consumers swipe their debit card thinking they have the funds to cover the transaction when in fact they don't. Nevertheless, the bank approves the transaction and then charges a hefty over-draft fee. Many financial institutions will charge an over-draft fee even if they do not approve the transaction. However, banks are more likely to approve the transaction because it can often generate more revenue if additional transactions occur. Sounds like a credit card company philosophy. Credit unions have always touted themselves as customer friendly while charging fewer fees than traditional banks and credit card companies.
Credit unions have been more lenient about charging such fees. It appears that will soon be changing. As credit unions look to increase earnings to cover credit card losses, they are rethinking the fee game. Some credit unions are offering a courtesy over-draft program. When a consumer swipes his debit card while there are no funds in the bank account to cover the transaction, they would be charged an a designated charge; typically $20 to $25. The credit union pays the transaction and gives the customer a designated amount of time to pay the transaction amount plus the courtesy over-draft fee plus interest within a designated amount of time. Some government credit unions have automatically signed their customers up for the program without approval. Credit card customers who have become more dependent on their debit cards are often unaware of the contract clause.
Legislators have become involved with the practice and asking for federal rules that will give customers the option to accept or deny the courtesy over-draft program. Credit unions say their customers like the program and they are only trying to service the needs of their customers. However, when you compare the cost of an over-draft and interest with a credit card charge and interest, clearly the courtesy over-draft option can be a more costly venture.