No $42 Hamburgers Here!

Wednesday, May 13, 2009

It seems just about everyone has a story about how overdraft fees turned a simple daily purchase into a budget breaking mess. Last week a colleague shared with me how about years ago he had written a check for a $2.71 hamburger. The check bounced leading to a $20 fee from the bank and another $20 fee from the restaurant.

My daughter had a similar experience. She racked-up $120 in overdraft charges in a single day, a day in which her total purchases were under $20. But she didn't bounce a check - in fact, she didn't have any checks - it was a checkless checking account. How can this happen? The previous day, she had filled her car with gas, paid inside to add on a pack of cigarettes (yes, Mom doesn't like to admit it, but her daughter smokes) and authorized the $25 total with her signature. Her bank placed a hold on those funds, but just for that day. When the purchase did not clear that night - which it never would with signature debit that typically takes 2-to-3 days to clear - the bank removed the hold and authorized additional transactions. A pack of gum, more cigarettes (ugh!) a couple of QSR meals and some sodas turned into 6 overdrafts transactions and $120 in fees. And at $19.95 a pop, her bank was offering a relative bargain in overdraft fees!

It's an easy trap for bank customers to fall into. But it could be prevented if holds on signature debit transactions were maintained long enough to allow signature debit transactions to settle.

At FSV, we work hard to make it almost impossible for our payroll debit card accounts to be over-drafted. We keep holds on signature debit transactions long enough for the transaction to settle, and if there are not sufficient funds net of holds, we don't authorize subsequent transactions. And, in the rare instance when an overdraft can still occur - such as a force posted merchant transaction - we don't charge customers a punitive fee.

More and more, customers are turning to prepaid cards for everyday spending precisely to prevent the risk of overdraft charges that tank their budgets for the month. I can't imagine ever paying $42 for a hamburger, but if I do, it better be by my choice and it better be Kobe beef!

Cathy Corby Parker
Executive Vice President