TruStone Financial’s Manipulative Overdraft “Protection” Solicitation
My credit union, Trustone Financial, sent me an Overdraft Authorization solicitation today:
Correct me if I’m wrong, but when you receive a letter from a financial institution you have a business relationship with that says “ACTION REQUIRED” on the cover, the enclosed information should have something to do with taking action on something that’s, you know, required.
But, that wasn’t the case in this case. Instead, Trustone simply wanted me to opt-in to allowing them to charge me more money. Opt-in does not equal action required.
This manipulative request from Trustone appears to be in response to the Federal Reserve’s rule change last year where they told financial institutions that they could charge overdraft fees to customers on debit card transactions only after receiving permission from their customers to do so.
For example, had I used my debit card to pick up a cappuccino at Cuppa Java this morning, but had less than $5 in my checking account at the time, my credit union could take a few different actions:
1. Deny the charge, causing potential embarrassment to me, but saving me from buying something I clearly couldn’t afford. Or, perhaps just using a different card.
2. Pull the money from a savings account or line of credit to cover the expense.
3. Let the charge go through, then charge me a $30 overdraft fee.
4. Let the charge go through, knowing that I’ve been a loyal customer for 20 years and am probably good for it. (LOL.)
Situation #3 is the sticker here. They can no longer do that if I don’t fill out their authorization form. Because I haven’t given them permission to charge me an outrageous fee, they can’t.
This can get particularly ugly for people who are living check to check. Getting hit with even one of those $30 charges can set off a cascade of additional overdrafts, thus more $30 fees, thus more overdrafts. At Trustone, the death spiral can continue until you’re $800 in the hole. At that point, they decline additional debit charges rather than continuing to bury you. I’m not sure if that size of a hole was determined to be the most punitive someone with little money can recover from, or if it’s set by the government, but I suppose it’s nice to know that it ends somewhere.
So, Trustone, if you really think that it benefits me to opt-in to receive $30 charges when attempting to buy things I must not be able to afford, break it down for me. Frankly, this seems WAY more expensive than putting the same charge on a high interest credit card where a $5 cappuccino could ride along at 20% interest for a decade before becoming more expensive than one $30 overdraft fee, but I’m willing to listen.
August 29th, 2011 at 4:26 pm
My bank, a credit union, has another way of making money. When I don’t have money in the account, they do option 1 (this was for an automatic withdraw I had set up) and then charge me $25 for telling the company attempting to take money that there is no money there. Then, when the company tries again, they charge another $25.
August 29th, 2011 at 4:27 pm
So, what are you going to do?
You don’t honestly use a debit card to buy cappuccino do you?
Don’t be That Guy, Ed.
August 29th, 2011 at 5:01 pm
I may have an unpopular opinion, but I’m one of those people that think an overdraft fee is OK (except for when they charge you the overdraft AND the returned check fee…FU Wells Fargo). I’ve been on the side of cascading ODF’s too and know how horrible it is. BUT, I’ve also used that punishment to become completely OCD about balancing my checkbook so that I know exactly how much money I have at any given time and setting limits on my spending in order to ensure a monetary cushion to ensure I don’t ever incur those fees again. I haven’t overdrawn my account in 10 years and I pretty much live check to check myself.
Also, if you’ve been a long time customer and haven’t had an overdraft in a while, you can usually call your bank and sometimes they’ll reverse the fee if you ask really nicely.
August 29th, 2011 at 5:47 pm
The letter is unclear, but Trustone isn’t changing anything. I couldn’t figure that out, though, until I talked to a person at a Trustone branch after I received the same letter some weeks ago. In talking to that person, I got the impression that the letter has caused a lot of confusion and anger.
Trustone will still take the money out of any savings account to cover it first, without charge. If you do not have anything to cover it, then they may cover it at a $30 charge. The alternative is for them to deny it. This has been the case for a few years. To my knowledge, they have never offered to cover it with their funds without charge.
The change is the requirement to get your permission for the fee on debit card transactions. Provided you have enough in savings to cover the transaction, it won’t matter.
August 29th, 2011 at 7:41 pm
@Rat, I paid in cash. The debit card for a cappuccino scenario was a hypothetical, although the cappuccino was very real and delicious.
@Alie, wouldn’t the same lesson be learnable by being declined on transaction attempts? That used to happen to me from time to time in college.
@Tomas G, I think we’re on the same page as far as our understanding of the rules go. Offering free overdraft options that rely upon savings or lines of credit makes decent sense. Offering a free cushion isn’t going to happen. I think charging people with little or no money such exorbitant fees for having just less than no money is something that deserves the opt-in hurdle required these days. Hopefully, that will convince people that they are better off managing their money a bit closer rather than opting in to a system that can bury them.
August 29th, 2011 at 7:42 pm
@Kassie, that wounds like a good deal for your credit union. They’ve found a way to make money by providing no service.
August 29th, 2011 at 9:13 pm
Ed, yes, same lesson could be learned, but I’m more motivated by hardship than by embarrassment.
August 29th, 2011 at 10:15 pm
@Alie, if you need a personal financial coach, I’m sure we can work out a deal that’s profitable for me that could help you avoid embarrassment.
August 30th, 2011 at 8:02 am
This is the kind of thing you expect from US Bank but not the credit unions. America what have you come to.
August 30th, 2011 at 8:19 am
For people who have exhausted any other credit source available this is the only protection they have when short term financial problems arise. When you have a car full of hungry kids at 3:00 pm and no one has had anything to eat that day you will be happy to pay an extra $30 for a bag of groceries you can’t afford. Not everyone is just lazy about balancing their checkbooks. If Trustone did’nt send that letter for my appproval then the money would not be available/accessible when I really needed it!!
What people fail to understand about overdraft fees is once you incur a $30 fee the first time you then know the cost of overdrafting your account and if you don’t absolutely need the extra cash it should be the last time it ever happens. The second time you clearly understand the consequences so I have a tough time listening to people talk about how pissed they are that their bank is always charging them overdraft fees. Shame on them not shame on the bank at that point
August 30th, 2011 at 8:33 am
Darin, I suppose this is a good way for credit unions and banks to profit off people who can’t afford to feed their children.
August 30th, 2011 at 9:59 am
Drama like that could earn you a Tony Award, Ed.