Short on cash? I know a quick and easy way you can get a short-term loan.
The catch: The interest rate is 5,000 percent.
Doesn't sound like much of bargain, but millions of Americans conduct such transactions every year with major U.S. banks in the form of overdraft fees. According to a new report by the Pew Health Group, the median checking account overdraft amount is $36, and the median overdraft penalty fee is $35 with a repayment period of seven days. That translates into the astronomically high annual percentage rate for this "service."
The Pew report gives more support to the not-so-shocking idea that America’s banks don’t really have their customers’ best interests at heart. Some highlights of the Pew report:
- Americans will spend an estimated $38 billion on overdraft fees this year.
- The average checking account user faces 49 different fees.
- More than 80 percent of accounts contain either binding mandatory arbitration agreements or provisions that require the customer to pay the bank's "loss, costs and expenses" in a legal dispute regardless of the outcome to the case.
- Bank customers are not provided full information about the costs of overdraft options.
- Banks do not provide policies and fee information in a concise and easy-to-understand format. The median length of checking account disclosures is 111 pages — that's twice as long as "Romeo and Juliet."
- Banks only deposit customer funds five days a week, while they withdraw funds seven days a week.
Pew reached its findings after examining more than 250 types of checking accounts offered online by the 10 largest U.S. banks. Click here for the report.