Will Capital One’s Takeover of ING Preserve Sensible Overdraft Practices?

Consumers Turn to Cash Advances to Avoid Costly Overdrafts

by Jennifer Case on December 27, 2011

Last June, Capital One announced plans to acquire ING Group’s online banking unit for $6.2 billion. The proposed acquisition spurred an immediate response from consumer groups and community banks, who warned that the deal could create another “too-big-to-fail” financial institution.

“Our main concern with the acquisition today concerns systemic risk,” Christopher Cole, senior vice president for the Independent Community Bankers of America, stated at the Federal Reserve’s hearing held Sept. 20, 2011 in Washington, D.C. Mr. Cole called for a “moratorium” on any acquisitions involving banks with more than $100 billion in assets.

The Center for Responsible Lending also weighed in on the proposed merger. “We are concerned that Capital One’s current overdraft practices are out of step with significant reforms other large institutions have recently implemented,” the group’s website states.  “These practices include continuing to charge high overdraft fees on debit card point-of-sale and ATM transactions, and posting transactions from largest to smallest, which maximizes overdraft fees.  While other large banks have curbed these practices, Capital One has not.”

Unlike Capital One, ING Direct has been applauded for its sensible overdraft practices, which have earned the respect of customers and consumer groups alike.  ING Direct does not charge high-cost overdraft fees; instead, its customers are offered an overdraft line of credit, at a reasonable annual percentage rate, currently 11.25%, with no additional fees.

Here are some common bank overdraft fees to watch out for:

• No Warning on Overdraft Charges: Many banks charge an overdraft fee for debit card transactions without giving customers a chance to cancel.

• Disproportionate Fees: The average overdraft shortfall is $17, while many banks charge $34.

• Subtracting Largest Debits First: Many banks subtract debits in order of largest to smallest dollar amount, instead of processing transactions in the order they occurred. This often increases the number of overdraft fees the bank can charge its customers.

• Holding Deposits Longer than Necessary: Some banks hold customer deposits even when no delay is necessary. This also can increase the number of overdraft fees collected by keeping customers in the red longer, even when they have already deposited sufficient funds.

Whatever your feelings on the proposed Capital One/ING merger, chances are your bank already has overdraft fees in place that can soak you for up to $45 with each occurrence. Often, the best way to avoid incurring those spurious charges is to make sure you have enough funds in your account to cover any outstanding bills or purchases. A payday loan can get you the cash needed to replenish your checking account within 24 hours.