Criticism
Despite consumer interest rates being at, historically, an all time low, many banks have moved from a community-investment based profit model to a customer fee based profit model. Many banks do not utilize a readily accessible technology that verifies available funds before accepting a debit or cheque charge. If a charge exceeds the available funds, most banks prefer to charge a fee that typically exceeds 10,000% of the cost of simply denying the charge. Ex. Alliance Bank raised the fee from $28.00 to $35.00 in 2009; This markup has recently caught the attention of consumer advocates and regulators alike; however, it is important to note that many banks charge the same fee for 'nonsufficient funds' as 'over-drafting', whether or not such 'protection' is enabled. The difference between either fee schedule is purely semantic; the same amount of money may be deducted from the customers account per incident, whether or not overdraft protection is enabled; thus, the only remaining distinction from the end-user's perspective is whether or not the 'bad transaction' is honored.
A customer's ability to dispute/reconcile such fees is heavily restricted, with some banks (such as PNC Bank), limiting customers to one dispute per year. Once this limit has been reached, it is typically the banks policy to deny any form of restitution, even in cases where the banks' fault is clearly demonstrable.
Banks, as trustees of their customers money, are also in the semi-unique position of being able to deduct fees from a customer's account directly, without permission from the account owner. In many cases, this deduction may cause further pending transactions to fail, creating an 'overdraft cascade' - a situation in which the fees charged may be several magnitudes greater than would have been charged had the pending transactions been processed before the fees. The instant, and often retroactive, nature of the fees lowers the account balance at the time the pending transactions are processed, creating an additional fee for each instance in which a transaction is attempted. It is not unusual for a dozen or more fees to be applied before a customer realizes that an account is 'empty.'
Read more about this topic: Non-sufficient Funds
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—Herbert Hoover (1874–1964)