You're at the ATM, looking to get cash out of your bank or credit union account. Before the money will come out, the screen gives you a warning like this: "This ATM charges a fee of $2 for this transaction. This is in addition to any fee your bank may charge. Do you wish to continue?"
You know what the deal is -- you have to pay a fee to get your money -- so you go ahead. You've made a well-informed choice to pay the modest fee.
But let's say you are trying to withdraw $20 more than you actually have in your checking account.
Does the machine then say, "Sorry, you don't have that much money in your account"?
Oftentimes, not. Your bank or credit union is happy to cover your overdraft -- for a hefty fee. You might be charged as much as $35 for the privilege of overdrawing by $20.
Financial institutions call it a convenience fee, but it's really a loan with an astronomical interest rate. On small overdrafts, the annual rate can run upwards of 400 percent or more -- higher than a pawnshop charges.
Banks will rake in $38.5 billion from overdraft fees this year, according to the research firm Moebs Services. Almost half comes from ATM or debit transactions, according to the Center for Responsible Lending. In those cases, it is possible to warn customers about the impending overdraft, notify them of the overdraft fee and give them the option of canceling.
To read the complete editorial, visit The Anchorage Daily News.