Wildhawk

The Scandal of Overdraft Fees

I think there is a fairly simple solution to NSF fees- go to an overdraft line of credit model.

I bank with US Bank, having switched from TCF because of several $35 NSF fees a few years ago when I was buying a home (long story, boils down to a check being held for 2 weeks to clear and TCF whacking me with fees every day until it cleared). When I signed up with USB, I asked for a way to avoid NSF charges, for which they suggested an overdraft line of credit.

The overdraft line works like a credit card, and has a $3,000 limit. If I overdraft my account, USB automatically transfers money from the credit line to my checking account (in increments of $200) to cover the overdraft. No transaction fee is charged, but I pay a fairly usurious level of interest on the credit line balance (last I checked, it was something like 21% annualized, prime plus 18% or something to that effect, with a 25% cap).

This serves to eliminate the aggravation of a $35 fee being completely out of proportion to the potential transaction size (e.g. the $6 lunch noted above), but still serves as a profit center for the bank, as I'm paying a credit card-like interest rate until I shift money back from checking to cover the credit line balance.

It works for me, makes me very leary of overdrawing the account due to the usurious interest rate, is completely transparent, and allows me to avoid overdraft fees. What's not to like, as long as I'm informed about the high interest rates, just like with a credit card?