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The $32 Billion Bank Heist You're Paying For

Bank robberies conjure up images of famous criminals like Jesse James or Bonnie and Clyde. But nowadays, many consumer groups are accusing banks of having turned the tables on their customers, taking billions of dollars from their accounts every single year. As appalling as that sounds, it's perfectly legal, and it all happens because so many customers voluntarily do something they could easily avoid: They overdraft their checking accounts.

Bank robbers Bonnie Parker and Clyde Barrow, also known as Bonnie and Clyde. Source: Library of Congress via Wikimedia Commons.

The appalling statistics on bank overdrafts
The amount of money involved in bank overdraft fees makes the worst bank heists in history seem like pocket change by comparison. According to a study by Moebs Services, bank customers paid $32 billion in 2012 on overdraft fees. That's actually down from $37 billion in 2009, but it's up slightly from 2011.

Millions of customers pay overdraft fees, with Moebs estimating that 38 million checking accounts -- more than a quarter of the total number of such accounts in the nation -- frequently incur overdraft fees. With a typical charge for overdrafts coming in at around $30 for banks and $27 for credit unions, incurring those fees multiple times can quickly add up to a huge burden on customers.

Payday lenders: the better alternative?
Perhaps the most surprising thing about the study is that payday lenders may actually be a lower-cost source for people short on cash than banks. As much as payday loan operators Cash America (NYSE: CSH  ) and Fast Cash Financial (NYSE: FCFS  ) and pawn-shop giant EZCorp (NASDAQ: EZPW  ) have been criticized for their high fees, the Moebs study found that typical fees at payday lenders were just $16 -- well below the typical overdraft charge.

When will the fees end?
Last year, the Consumer Financial Protection Bureau took on high overdraft fees with an investigation into whether certain bank practices improperly increased the amount customers were charged. Among the areas the CFPB examined were transaction-reordering guidelines that often lead to multiple overdraft charges, as well as misleading marketing materials.

CFPB Director Richard Cordray. Source: CFPB.

If the CFPB is successful in limiting overdraft fees, the impact could be huge. Already, Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , and other banks have ended the practice of resequencing transactions in a way that could increase fees. Yet as Fool contributor Amanda Alix noted at the time, further limits could cost banks 3% to 4% of their earnings, with B of A's losses potentially amounting to $480 million. Until the CFPB plugs all the potential loopholes, high-cost overdrafts will continue to happen.

Protect yourself
In the end, as ridiculously simple as it sounds, the only way you can stop banks from taking your hard-earned money is to stop overdrafting your checking account. Given how common overdrafts are, though, millions of Americans don't appear likely to follow that advice anytime soon.

Customers may be appalled at how much they pay in overdrafts, but investors are happy that Bank of America's stock doubled in 2012. Is there more yet to come? With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, financials bureau chief, lift the veil on the bank's operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

Read/Post Comments (23) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 07, 2013, at 10:55 AM, gp17 wrote:

    Banks have been unrestrainedly stealing from the American people in many ways, not just this one. How about by paying such low interest rates on savings? How about by not performing their basic function at all, which is to invest money in ways that improve the economy? They invest money only in ways that improve their bottom line and enrich their shareholders and executives.

  • Report this Comment On April 07, 2013, at 10:59 AM, Dadw5boys wrote:

    In American Bank rob you !

  • Report this Comment On April 07, 2013, at 11:00 AM, sonoftherepublic wrote:

    what the hell are the banks supposed to do - if so called grown ups can't run a frigging checking account then have to pay - the last time the do gooder of a president tried to intervene for these dead beats I ended up having to restructure my retail banking to suit the new rules which instituted 1500 minimums etc to avoid fees that did not exsist in my agreement when I opned my accounts - dead beats collectively killed free checking and or the federal banks are just as stupid and greedy to boot - your article really sucks- it does not belong on this site - try writing something that adds value to the pursuit of Alpha next time

  • Report this Comment On April 07, 2013, at 11:09 AM, JoeMiddleclass wrote:

    I counted today's Yahoo 'news' stories. 18 f them were from Motley Fool. Folks this isn't news this is a company paying to masquerade as a news source to sell you their services. Yahoo is selling us down the river with bad reporting to begin with and then 'phoney' news.

  • Report this Comment On April 07, 2013, at 11:12 AM, jocker912 wrote:

    Bottom line, be fiscally responsible and pay attention to your balance, I'm tired of us feeling bad for stupid people, haven't had an overdraft in years

    your account your responsibility. The banks are just recovering fees from stupid people, you cant fix stupid so tax it.

  • Report this Comment On April 07, 2013, at 11:14 AM, foolvictim wrote:

    banks change the order of your tansaction overnight.they take your biggest transaction and run them manipulating the order of checks and debits banks can cause you to overdraw sooner and more often than you thought earning huge overdraft for themselves and easy money for them..thes should be look up by the lawmakers as it bring poor worker more poorer.

  • Report this Comment On April 07, 2013, at 11:30 AM, tweeter31469 wrote:

    Paying attention to your balance will not ensure that you do not overdraft. In every bank contract, they reserve the right to change the order of your transactions. This change is always in their favor. As Foolvictim said, they first charge the transactions largest to smallest. This way if the larger transactions overdraft your account, they can charge a fee for EVERY SINGLE small transaction. If you made 10 small transactions, then ONE large transaction that overdrafts your account, instead of paying one overdraft charge, they will run the large transaction first, then charge a fee on each overdraft on the 10 small transactions. If the fee is $30, instead of owing $30 for the large transaction, you will owe $300. They also process deposits last to increase the chances of overdraft. Even credit unions work this way but usually on a smaller scale. Banks will sometimes change the order of days worth of transactions, particularly over a weekend. Just watching your balance wont work. You have to also anticipate the bank changing your transactions and act accordingly.

  • Report this Comment On April 07, 2013, at 11:36 AM, demiztuff wrote:

    Banks are thieves!

  • Report this Comment On April 07, 2013, at 11:38 AM, emailnodata wrote:

    Simple steps;

    -do NOT use your debit card for everyday transactions.

    -get a cashback credit card, charge everything that'a allowable to it. Pay the balance charged each and every month.

    -if you are not a deadbeat, your CC should have ample room to hold your mouthy expenses..unlike what may be in your CC.

    -CC's give you strong consumer protections (it's the bank's money first, after all); debit cards do not.

    Summary: You should rarely directly remove money from your checking account. I personally write maybe 20 checks per year, and about 20 ATM withdrawals per year, max. All other transactions are ACH...most where I'm doing a 'push-money-to-an account" ach transaction.

    Your checking statement each month should be very, very short.

  • Report this Comment On April 07, 2013, at 11:46 AM, Peter88888 wrote:

    The bigger issues is the HEIST that Bernake is taking monthly to the amount of $ 88 Billion and congress does not even vote on.

    Let's see $88 Billion EVERY MONTH or $32 Billion... why not write about the $88 Billion a month

  • Report this Comment On April 07, 2013, at 11:56 AM, Ticiala01 wrote:

    Once again our Govt oversteps its bounds to protect idiots who spend money they don't have. The fees should be high to discourage consumers from over drafting their accounts. I pay my bills, I pay my mortgage, and I'm tired of paying for everyone else. The cfpb should stop interfering in legit businesses.

  • Report this Comment On April 07, 2013, at 12:52 PM, Patastic wrote:

    If your bank is stealing from you, first, you should review the contract, yes contract, you signed in the form of the account agreement YOU signed...voluntarily. Asking the government to come in now and protect YOU from the agreement YOU signed undermines contractual law and the Constitutional underpinnings of a country founded on the rule of law, not the rule of men. If individuals have no confidence in the government upholding private contracts, we are one step closer to chaos. If they are violating their contract with you, there are free legal services to help you.

  • Report this Comment On April 07, 2013, at 12:57 PM, Wenmomojo wrote:

    The banks started their predatorial business model when they realized they could make an enormous amount of income from their lower depositors.

    Thee main strategies were employed:

    1) Running withdrawals from highest to lowest regardless of chronological order. This enabled banks to collect several overdraft charges instead of just one.

    2) Delaying deposits. Checks were "held" from 2-9 days depending on balance history. This virtually guaranteed overdraft charges.

    3) A balance check on an ATM will show a number higher than what your "available" balance is. I never understood how this isn't outright fraud.

    These banks hide behind fine print and flashy smiles while they are shredding your account. I no respect for anyone working in that industry, gouging the people that can least afford it.

    People that are well off enough to not worry about their account balance should not busy themselves being indignant about other peoples struggles. They should be busy counting their blessings.

  • Report this Comment On April 07, 2013, at 2:03 PM, myadjuster wrote:

    Avoiding overdraft fees is as simple as understanding basic banking operations, and then disciplining one's self to not try to spend money that you do not have. The rules are explained each and every time an account is opened. Sadly, most folks do not pay attention. This is not the fault of banks. Overdrafts represent an unsecured loan to a depositor who is a demonstrated deadbeat. This imperils the safety of the entire institution and its depositors who do follow the rules. Since fees can be avoided by acting responsibly, my feeling is that those who chose to be deliberately stupid deserve their fate

  • Report this Comment On April 07, 2013, at 2:47 PM, Kolliflowerkid wrote:

    Keep an available balance in your account that exceeds the amount of the check that you write AND YOU WILL NEVER HAVE AN OVERDRAFT! Take repsonsbility of your financial future. Don't have money in your accoun?, Then DON'T WRITE CHECKS!

  • Report this Comment On April 07, 2013, at 3:33 PM, JoeMiddleclass wrote:

    Is this a paid for "news" story by Motley Fool to get clients? I have noticed that since the "NEW" yahoo home page has started there are dozens of these "news" stories from Motley Fool which end up promoting their financial advice. SHAME ON YOU YAHOO!!!!

  • Report this Comment On April 07, 2013, at 4:22 PM, Crystar98 wrote:

    Wow so this journalist feels that banks are robbing their customers who are robbing them by trying to spend money they don't have. This is why the country and world is in its current situation, authors like this who are truly misguided on what's right and wrong!

  • Report this Comment On April 07, 2013, at 4:51 PM, Kariina1 wrote:

    If people are going to steal money from the bank by spending money they do not have do they honestly think the banks are not going to charge them for the use of that money? Kinda like the interest you pay every time you use your credit card and do not pay the full balance every month. Hello people banks are not a non-profit organization! It is quite simple to avoid those fees, just spend only the money you have and you will never get charged any fees. Guess too many people follow the philosophy of "I want what I want when I want it" rather than saving til they have the money to spend on the item.

    Grow up people, act like responsible adults and accept that NOONE owes you anything period!

  • Report this Comment On April 07, 2013, at 6:10 PM, sciencedave wrote:

    Banks have a right to charge a fee....the point of the article is that the fee is excessively high and used as a major source of income not to deter people from overdrafting. The banks practices actually encourage overdrafting costs. Does that sound like a firm you want to do business with? The actual cost to the bank is nowhere near the amount they charge. Just making the bank richer.

  • Report this Comment On April 07, 2013, at 6:49 PM, JimmyJamesJim wrote:

    $32 billion, @ $32 per is one billion overdrafts. That's 3 overdrafts per year per person, man, woman and child. Somebody is overdrafting over and over again and the pain of paying $32 is not enough to make them stop. I think they should charge $64 for the second overdraft, $128 for the third, and so on until they ascertain what level of pain the overdrafter is willing to endure.

  • Report this Comment On April 08, 2013, at 9:49 AM, jesuit79 wrote:

    Who cares what order the checks are sorted? The overall amount of the checks shouldn't exceed the balance in your account. Pretty simple. I guess allowing them to bounce and paying the merchant the same or more for a returned check fee is ok? What's the difference?

  • Report this Comment On May 27, 2013, at 10:18 AM, crazydepositor wrote:

    scheme of the bank now is to charge your account of monthly fees another way of raking money without a sweat.......IU do hope the goverment will regulate bank of thier system......or let the people choose if they want their hard earned money deposited or to be recieved it in cash form........or check...anyway bank will surely find their way to get money by fees or whatever.....

  • Report this Comment On September 27, 2013, at 5:17 PM, foolvictim wrote:

    I have enough balance on my account I am on wait and see this wellsfargo bank will manipulate again my account in order to gain penalty ..thier computer sense that i have enough to cover the expenditure that is on standby ince it sense it over then modus operandi will occur....what a bank system

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