A key problem with the overdraft coverage is one of framing. If you accept that they’re just “fees,” $34 sounds steep but not overwhelming. If you frame them as loans, though—which is how they should be viewed, since the bank is lending you money short-term to cover overdrawing an account and charging you for the “courtesy”—it really changes how they look. The Times is good to point that out here:
According to the F.D.I.C. study, a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent.
What can you say about 3,520 percent? And that’s low, according to one study, which found that the median APR on an overdraft is 4,547 percent.
The Times ends with a look at what might be done about it. It notes that ferocious lobbying by the banks led the Fed to protect their cash cow in a 2005 ruling. These folks are wounded now, but they aren’t going to let a super-high-margin line of business go quietly. That $27 billion can pay for a lot of campaign donations, ads, and high-priced lobbyists.
But if anything is done, we’ll have the press to thank, in part, for helping put this issue on the front burner.