Jewish World Review Dec. 23, 2004 / 11 Teves, 5765

Jeff Gelles
Consumer Watch

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Consumer Reports

Debit cards have hidden pitfalls

By Jeff Gelles | (KRT) Debit cards are everywhere this holiday season - more popular for shoppers even than cash or credit cards, according to the National Retail Federation.

One reason consumers say they prefer debit to credit is that they're spending their own funds, not money lent by a bank. With debit cards, they say, they can't get into a hole, and don't have to pay extra for interest, late fees, or other annoying charges.

But that's not completely true. As some consumers have learned the hard way, debit cards come with their own pitfalls. Just ask Joel Spiller about his recent dispute with Wachovia Bank over his son's account.

Spiller, of Churchville, Pa., asked me not to identify the local college his son attends, to spare him any embarrassment. But what happened to Jeremy Spiller could happen to anyone.

In one month this fall, Spiller used his Visa Check card for 10 purchases and eight withdrawals, totaling less than $250. En route, he generated nearly $140 in fees - almost all to Wachovia, and almost all for overdrafts that totaled less than $12. In one case, Spiller apparently was charged $31 for an 11-cent overdraft.

How does someone "overdraft" a debit-card account?

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One answer is that Wachovia, like many banks, routinely lets debit transactions go through even if you don't have enough money in your account. Though consumer advocates complain that such practices generate steep fees - and suspect they're designed with that purpose in mind - Wachovia says it allows overdrafts as a courtesy.

"Most people don't want to be embarrassed when they're in the checkout line with a week's worth of groceries," says spokeswoman Barbara Nate. "They don't want to have to go home without them," or come up with another way to pay. Nor do they want important checks, such as mortgage or rent payments, to bounce.

Wachovia and other banks offer ways to avoid its $31 overdraft fee, though each carries its own complications.

One is to sign up for overdraft protection, which Wachovia offers through links to a savings account or to a credit card.

Under either plan, overdrafts are still paid - you're still able to get your groceries, or withdraw beyond your available funds at a bank machine - and your overdrafts will still generate fees. But the cost drops from $31 per overdraft to $5 apiece.

Another approach is to ask the bank to set your overdraft limit to zero. If you do that, you'll never have to face a $31 overdraft charge for buying a $4 hoagie, as Spiller was.

But be careful about a side-effect of that choice, at least at Wachovia: The bank also won't pay any checks if you don't have adequate available funds. As a result, your rent or mortgage payment could bounce.

Is there a middle ground - say, allowing overdrafts on checks but blocking them on debit-card use? Visa USA says that's up to its member banks, but Wachovia doesn't allow it. Still, Nate says Wachovia can sometimes warn customers before overdrafts occur.

Nate says Wachovia customers who use the bank's own ATMs are warned if a withdrawal will exceed their available balance. And online customers can request e-mail alerts if their account dips below a specified level.

If you keep a record of all your transactions in a check register, a step Nate recommends, remember to include fees. Each of Spiller's withdrawals from a non-Wachovia ATM generated a $1.50 fee - enough to trigger at least one of his overdrafts.

Purchases that generate overdrafts aren't debit cards' only pitfalls.

Another is the "hold" that some merchants place on funds that you don't actually wind up spending. For instance, a gas station might put a $25 or $50 hold on your account the moment you swipe your card, to authorize a purchase before the bottom line is known. Holds should disappear when a transaction clears. But if you're not careful, they, too, can trigger overdrafts.

And Spiller encountered a problem that has frequently tripped up check-writers: the order of payment.

Wachovia's practice, like most banks', is to pay the largest checks or debits first. Bankers say they do this because the most important checks are most likely the biggest ones. But one consequence, intended or not, is that extra fees can be generated.

One day on Spiller's recent statement is a case in point. On Oct. 4, a Monday, Wachovia posted five purchases, two withdrawals, two ATM fees - and three $31 overdraft charges.

The statement lists each day's postings from smallest to largest, and doesn't show a running total. When Joel Spiller generated his own, he realized that if Wachovia had posted them as they were listed, only the last transaction would have triggered an overdraft.

"It's the most confusing thing I've ever seen in my life," says Spiller, who works in data-network design and has a master's in business from the University of Pennsylvania as well as a master's in psychology. "It almost seems as if they want people who keep low balances to bounce a lot of checks."

No banker will say that - not at Wachovia or anywhere else. But that doesn't mean Spiller is wrong. The evidence speaks pretty well for itself.

Jeff Gelles writes the ConsumerWatch column for The Philadelphia Inquirer. Comment by clicking here.


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© 2004, Philadelphia Inquirer Distributed by Knight Ridder/Tribune Information Services