Cash advance loans are certainly costly, with interest rates that can top 1000% per year, but many customers pay a similarly high price for checking account overdrafts without even knowing it.

Customers are not necessarily informed of the amount they are paying their financial institutions for overdraft loans or overdraft "protection" as it is often called. The total cost of bank overdraft coverage is higher than you might think; a $35 charge, repaid in fourteen days' time, adds up to 910% interest annually and that can double to an astonishing 1820% if the person pays within a week. Overdraft fees differ from bank to bank, but typically range from twenty to thirty five dollars per transaction. Many banks now include overdraft protection as an inherent part of their checking accounts. If a consumer writes a check or makes a debit card purchase for more money than he or she has available, the bank will honor the transaction, but the consumer will then be billed for the overdrawn amount.
 

When Americans do not know how much cash they have in their checking account overdrafts are all the more likely. The consumer gets no notice if he or she is on the verge of overdrawing the account; the protection automatically takes effect, and the fee is automatically assigned. The ability to draw more funds than you might have at your disposal is useful, especially in light of the fact that few people ever balance their checkbook properly. It is unfortunate that banks automatically include the overdraft protection and don't allow customers to "opt out" of it.

Bad check protection amounts to successful lending, but unlike payday loans, individuals don't always understand that they are even borrowing money. If customers realized that this protection is really a loan, they might be less inclined to make use of it, especially if they were aware that overdrawing a checking account by five dollars still requires a $35 charge. Overdraft protection is profitable business for the banking industry, which takes in at least ten billion dollars annually in overdraft charges alone.

Considering the present mood in The White House and Lawmakers' rather favorable view of the financial industry, it seems unlikely that any legislation safeguarding Americans from exorbitant bank charges will come along any time soon. As a means of saving money, we suggest that consumers balance their checkbooks a bit more frequently. In a perfect world, financial institutions would be required to notify customers that such programs are in place, and they would additionally be required to permit customers not to participate if they elected to do so.