What is a Debit Card Advance?

Some folks in the banking industry have criticized payday loans calling them predatory and their interest rates excessive.  Other experts believe that they are critical for "underbanked" consumers that need money fast for emergency purchases like a car repair bill or past due rent.  Payday loans are not the only lending products available that could be considered predatory.  An Automatic Overdraft Service, sometimes referred to as a Debit Card Advance, does not typically involve interest but the associated fees certainly seem excessive.

Recently a friend showed me an offer she received from a well-known bank for an Automatic Overdraft Service.  The first thing that caught my eye was that the bank charges a $35 fee per overdrawn transaction up to a maximum of 5 per day.  That means a customer could overdraw $300 or $30 in a single transaction and pay the same $35 fee.  Or they could make five separate $30 transactions in a single day for a total of $150 and the fees would add up to $175 and more than the total of the transactions.  It didn't make a lot of sense to me. 

Thinking that perhaps I was missing something here, I placed a call to the bank asking about the typical limit available for a debit card advance.  My first thought was that the typical limit would be a couple thousand dollars, making the fees seem more proportionate.  However I found that the limit typically ranges between $300 and $900, depending on the applicant's credit score, banking history, and other factors.

In addition, the bank also charges a one-time fee of $20 each time your account is overdrawn for 10 consecutive business days.  10 consecutive business days?  Ironic that they give a customer 10 consecutive business days to pay off the debt before adding another fee, as most people have a payday every 10 business days.  The bottom line is that it doesn't take a banking expert to see that an Automatic Overdraft Service can be very costly if a consumer doesn't know all the rules.  Would they be considered Predatory Lending?  Only our regulators can decide that.