Students burdened by overdraft charges

By Harriet Johnson Brackey , South Florida Sun-Sentinel

October 01, 2007 

FORT LAUDERDALE, Fla. – College students have the burden of big tuition bills, heavy student loan costs and textbook prices that are out of sight. And, it seems, $1 billion in bank-account overdraft fees, too.

The Center for Responsible Lending, a nonprofit group, raised an alarm about the burden of bank overdraft charges on students. The Durham, N.C.-based group also questioned cozy relationships between banks and colleges, where the banks pay the schools in return for exclusive rights to market their services on campus.

Student ID cards can also be used as bank debit cards at three major Florida schools – the University of Florida (Wachovia), Florida State (SunTrust) and Florida Atlantic University (BankAtlantic) – and at least 100 more nationwide.

Every time a student overdraws an account, the report says students on average are shelling out more than $3 in bank overdraft fees for every $1 they are overdrawn, the study said.

“When the partner bank uses abusive overdraft practices, these deals come at the expense of the students’ financial well-being,” the report said.

Banks don’t see the overdraft fee issue in the same light. “Of course I don’t agree that it’s abusive. That’s because in the case of a student we try to do so much education up front,” Kathy Harrison, spokeswoman for Wachovia. “We’re not trying to abuse that student, we’re trying to build a relationship, to get a customer for life.”

Students account for about 6 percent of all overdrafts, the center found in its study of thousands of banking transactions. Students tend to use debit cards more often than older adults and debit cards are the leading cause of overdrafts, the report said.

All that adds up to a total overdraft bill, every year, of $963 million for people ages 18 to 24, the study said.

“We wanted schools to know that if they are going to do these partnerships, they should make sure their students are protected,” said co-author Leslie Parrish.

The report was released as the U.S. House Financial Services Committee prepares to take up legislation in October, sponsored by Rep. Carolyn Maloney, D-N.Y., that would limit bank overdraft practices.

The bill would require banks to tell people at the ATM and possibly at the checkout counter when their accounts run dry, prohibit banks from charging overdraft fees unless customers have agreed to pay them and ban two practices that tend to contribute to overdrafts. Those include banks delaying posting deposits and clearing big checks ahead of smaller ones, despite the order in which the checks are posted.

The center’s report urged universities not to partner with banks that have what it called “abusive overdraft policies,” which can jeopardize their students’ financial welfare.

Florida State University receives $270,000 a year from SunTrust for the being linked to the FSU student ID, said Paul Strouts, associate vice president for administration. That comes from a fee of 30 cents for any transaction made on a non-SunTrust automated teller machine and a 1 percent fee based on the average monthly balance of student accounts that are linked to the FSU card.

Even so, Strouts said the cost of offering the FSU card is greater than the amount SunTrust pays the school. That’s because the card also contains a smart chip, which allows students to load money for use in vending machines, to do laundry or to pay other expenses. Students are not required to have an account at SunTrust to use the FSU card.

To encourage financial responsibility, FSU several years ago produced a video about credit cards that is given to all students as they enter the school. And FSU says it requires SunTrust, which has a branch on campus, to explain its policies well to students.

“Students know what the relationship (between FSU and SunTrust) is and we insist that they communicate clearly to students,” Strouts said.

At the University of Florida, the school’s relationship with Wachovia produces $3 a year for every active student account linked to its “Gator 1” identification card. That adds up to around $15,000 a year, said Bob Miller, associate vice president for business affairs. “We’re not sharing in any kind of benefit from any overdraft fees.”

Wachovia waives the overdraft fee for the first overdraft from a UF student, Harrison said. A bank counselor will try to reach the student to explain the situation. After the first time, the overdraft fee at Wachovia is $22 and then $35 for every time afterward.

BankAtlantic pays Florida Atlantic University $75,000 a year plus 50 cents for every new account linked to the school, said Kenneth Jessell, vice president of financial affairs. One reason the school likes the arrangement, he said, is it allows the school to directly deposit financial aid refunds, putting the money into the student’s hands more quickly and securely than if the school mailed a check.

The Center for Responsible Lending looked at 4,036 consumers who had at least one overdraft at the 15 largest banks in the nation between January 2005 and June 2006. From that database, it sorted out 18- to 24-year-olds – the typical student age range – and found that they account for almost 6 percent of the worst overdraft situations.