The New York Times is excellent to spotlight how banks are using aggressive marketing tactics to try to trick customers into opting in to overdraft “protection” now that federal law forces banks to make consumers choose to let banks dock them $35 a pop for the privilege of overdrawing. Banks will, of course, do what it takes to keep as much of that highly profitable tens-of-billions-a-year revenue stream flowing as they can.
We warned about this back in October when the surprising news broke that the Federal Reserve had ordered the shift:
Of course, how effective this new regulation will be at squelching this disaster for consumers is largely dependent on whether the Fed forces banks not to mislead, I mean “market,” overdraft “protection.” Some required boilerplate explaining first the costs of doing so, including that the average household in America pays $368 in overdraft fees every year, ought to put any subsequent spin in context. Its effectiveness will also depend on whether the Fed forces banks to end overdraft protection for existing customers and make them retroactively opt in. The press needs to pay close attention to this stuff and not walk off with the trophy just yet.
Good for the Times for doing so. Here’s what it’s finding:
Chase and other banks are preparing a full-court marketing blitz, which is likely to include filling mailboxes with various aggressive and persuasive letters, calling account holders directly, and sending a steady stream of e-mail to urge consumers to keep their overdraft service turned on.
JPMorgan Chase CEO Jamie Dimon, who all too often gets the fluff treatment in the press, is sending out this junk:
“Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you,” the message, emblazoned in large red type, warns. “If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency,” with “even in an emergency” underlined for emphasis.
Calling all personal-finance columnists—stat! They and the rest of the press need to really focus on this issue and explain why almost everyone should ignore these intentionally misleading pleas. And they need to explain why this kind of thing isn’t being discouraged by regulators. Would a Consumer Financial Protection Agency fight these tactics where the Federal Reserve will not?
The Times reports that the consultants are scrambling to remind banks to fleece their customers:
Another consultancy, Pinnacle Financial Strategies, advises an “Opt-in Total Solution” program for banks and credit unions trying to stem losses in overdraft fees. Pinnacle’s briefing paper urges an “account holder identification process” to zero in on consumers who pay such charges repeatedly and persuade them to keep the status quo.
I like how the paper juxtaposes Chase’s flackery with an anecdote about why it’s probably not a good idea for the hen to go to the fox’s den for advice on protecting her eggs:
A spokesman for Chase said: “We have begun to reach out to customers and are encouraging them to sit down with a branch banker to make sure they understand overdraft services, which can be confusing. We want them to make an informed decision.”
When consumers get to the bank, another pitch awaits. Mark Sorenson went into a Dallas branch of Bank of America to turn off the overdraft function on his debit card recently and got a distressing response.
Beware, his banker cautioned. If Mr. Sorenson used the card to buy gas, the station might place a hold on his account and he might not be able to fill up at all, even if he had enough money in the bank to cover a full tank.
“My impression was that it was something he’d been briefed on,” said Mr. Sorenson, an architect who said he had tired of paying multiple fees when the bank automatically covered shortfalls on his debit card. “He was trying it out on me.”
Good stuff. Spread this story far and wide.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.