Many credit unions now playing the fee gouging game

Credit unions have long been touted as a better alternative to banks because they don’t charge nearly as many fees to do business. But USA Today has a story about how credit unions are following the lead of banks and charging members “courtesy overdraft fees”. When customers don’t have enough money to cover transactions, the credit union may pay checks and debit card purchases, then charge a fee of $25 each time.

Overdraft fees have become an important source of revenue for credit unions. If consumers overdraw on a $20 debit card transaction, are charged the median fee of $27 and repay the credit in two weeks, they’re effectively paying a 3,520% APR, according to the Federal Deposit Insurance Corp. The story quotes Brad Nickum, an advisor to regional banks, who says that “[w]hen you allow an overdraft, it increases the probability of subsequent fees” because consumers have less money to cover other transactions.

Of course, the fees are less popular with consumers. The story quotes Robin Rutan, of Glenwood Springs, Colo., who says that ”[t]he reason people use debit cards is so they won’t go over” their account balance.  ”But they find every opportunity they can to zap you.” The courtesy overdraft is also unpopular with the Obama administration, although their complaint seems to be less with the fees themselves and more with the way consumers are enrolled in the program. The administration is considering proposing new rules that would force credit unions and banks to get consumers permission before enrolling them, rather than the current practice of automatically enrolling all customers.

USA Today: Courtesy overdraft fees hit credit union customers, too (via U.S. PIRG Consumer Blog).