Free Checking is not Free?

"The free checking accounts that banks advertise are not really free. Customers are lured into debt traps by being allowed to use their debit/ATM cards even when there is no money in their account," says CRC Senior Policy Advocate Rhea Serna. "Millions of customers are unknowingly using these cards for small purchases that could end up costing hundreds of dollars in overdraft fees. For example, a customer who thinks she has money in her account and uses her debit card to purchase a $1.35 bottle of water at Wal-Greens, could end up spending an additional $35 because her bank did not inform her that there is no money in the account."

In the report entitled "'Free' Checking is not Free," CRC analyzes the overdraft policies of California's biggest banks: Bank of America, Bank of the West, Citibank, Union Bank of California, U.S. Bank, Washington Mutual and Wells Fargo. The report shows that all these banks charge their customers hefty overdraft fees, and that five of them increase their fees each time a customer overdraws her account. Customers aren't given the choice to opt out of overdraft coverage, and are thus forced to incur fees that range anywhere from $30 to $35.

These banks all have complicated and often unexplained policies regarding overdraft fees and the processing of their customers' deposits, thus it is hard for customers to avoid overdrawing their accounts. For example, banks often place holds on their customers' deposits making their money inaccessible for up to 11 working days. Customers often don't know about these holds and continue to write checks and use their debit/ATM cards, incurring an overdraft fee for each transaction. Even at a bank's own ATM, account holders aren't alerted if they are about to make a withdrawal that will overdraw their account. These policies lead to more fees and profit for the bank. "Banks gain tremendous profits from overdraft fees at the expense of low wage workers," says CRC Executive Director Alan Fisher. "These fees make it impossible for low wage workers to save money and ultimately push them out of the financial mainstream."

Consumers need a place to safely keep their money and to conduct basic financial transactions, like cashing a check. Having a bank account should help consumers build wealth and assets, not hinder them. But the "free" checking accounts that are often their only option are not free. For bank customers who are drawing their accounts down to a near-zero balance each month, "free" checking accounts can lead them down a path of excessive overdraft fees and debt.