By Scott Jacobs

(c) Joel Heller, Green Bay Press-Gazette

After Congress passed the 2009 credit card reform bill, I started receiving a wave of junk mail from my bank, JP Morgan Chase, informing me of my right/duty to re-authorize the overdraft protection on my checking account.

Over the years, at the urging of friendly tellers, I have signed up for a variety of Chase credit cards with names like the Freedom Card, Business Rewards and Cash Plus, but I never use them. Paying off one credit card is hard enough. Three is a bankruptcy waiting to happen.

But I don’t want my friendly bankers to think I’m not a team player so when the cards arrive, I usually just cut them up quietly and that’s the end of it. When I went to get my new overdraft protection approved, however, my personal banker suggested I switch it to the one with the lowest rate (11 %) to save on overdraft charges. Being of sound mind, I agreed.

Before I knew it, I had $1600 in overdrafts on a credit card I haven’t used in over a year –– and no statement reflecting it. Okay, I admit, I was a little cash short that month so I don’t dispute the charges. What bugs me is that when Chase finally displayed the charges in my online account (and I paid them off), they were carrying a 24% interest charge.

The Run Around

This didn’t seem right so, when I got the next IMPORTANT NOTICE from Chase Bank about “a feature called Chase Debit Card Overdraft Coverage”, I decided to dispute the interest rate. I called the customer service number provided at the bottom of the letter. 1-866-532-4272.

As you might guess, all the telephone bankers were busy assisting other customers. The first responder, however, was quick to identify my problem as a credit card issue and sent me to another number. 1-800-945-2006. The second responder said this was an issue for the checking account credit services department; and he connected me to a third responder in The Phillippines who referred me back to 1-800-945-2006. When I told him I had just spoken to 1-800-945-2006, he connected me to his manager,  my fourth responder, Chris Delgado, who was randomly assigned among Chase’s 50 international call centers to take my case from his outpost in Arlington, Texas. He suggested I call back and not use the words “overdraft protecton” so my call would be routed to another call center that just handles credit cards.

Back to Square One

As much as I enjoy touring the world through call-holding muzak, I went in to my local Chase branch the next day to take up the matter in person. The good thing about meeting in person with your banker is they can instantly pop up your personal information on a computer screen. The bad thing, from their perspective, is you can ask questions all day until the sun goes down, and the only way he can get rid of you is to call security – and that’s bad for business.

It turns out there is an answer for everything in the banking world, and very few of those answers benefit the client. For all the talk about credit card reform, the only significant change in the law is that banks now are required to have consumers “opt-in” to overdraft fees – or face even larger fees for insufficient sums and/or bounced checks. The fees themselves are largely untouched by the new law.  (Except no more than one fee can be assessed per day, and banks cannot charge overdraft fees on fees that create more overdrafts. This is the banking industry equivalent of nit-picking.)

Every time I write a check that exceeds my bank balance, Chase charges me $10 per incident and 24% interest for every day that I do not repay the overdraft. As it turns out, it doesn’t matter that the card I am using has an 11% rate, my banker now informed me.  This money is considered a “cash advance” subject to an industry standard 24% interest rate. No ifs, ands or buts.

The Overdraft Racket

I am not alone in my despair over these charges. Fifty million Americans dip into their overdraft account at least once a year; and 27 million use it five or more times. Between 2006 and 2008, overdraft charges rose 35% – and that was before the economy tanked. A 2008 study of overdrafts showed that a majority are due to small debit card transactions under $100. But they generate an outrageous $23.7 billion in revenues a year –– more than the total annual revenues of Google the same year.

What banks once offered free as an enticement for new customers in a competitive bank environment  is now a secure (and growing) profit center in banks too large to fail. And Chase’s response to Congressional efforts for more disclosure is a blizzard of junk mail, a web of telephone support lines that stretches from the Phillipines to Texas, and misinformed personal bankers who don’t understand the products they are selling.

Washington’s Problem or Yours?

The new 2010 financial reform bill that has now made its ways through both houses into a conference committee has a lot to say about a new consumer protection agency that will monitor credit card rates. Maybe too much, it turns out. With all the banking lobbyists at work there, the exact language of the final bill is being tortuously twisted around how banks describe their rates. But nobody is seriously thinking – or saying – that 24% is a usurious rate for a $100 overdraft (or that the $10-35 one-time fee banks can charge for each occurrence borders on payday loan rates) because that would be an unwarranted intrusion of government controls on the free enterprise system.

The difficulty Congress encounters even getting banks to describe what they do, however,  makes it clear they are incapable of setting caps on rates that are fair to both borrowers and lenders. And the more Congress struggles, the more I think that’s not really their job. Why should we expect Congress to set fair rates for overdrafts? Why do we think the banking lobby will just lie down and die? Why do we keep expecting Congress to do anything right?

The right thing to do, in this case, is don’t rely on bank overdrafts. They are a rip-off. A $100 overdraft at Chase that goes unpaid for a year will cost you $134. That’s just stupid. And Congress has no obligation to keep people from being stupid.

Our obligation as citizens is to be smarter.

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