Virtual theft is very real

A friend of mine recently deposited a check for some editing work. The check cleared and he paid his bills. Then, the check bounced and he racked up some $400 in overdraft charges. Several days after his account was overdrawn, the bank was still allowing him to make purchases. When he got on the phone with them, he was irate. Why, he asked, would they allow that? Why can't they let him know? The answer was "we don't do that."

The answer should have been "because we make a lot of money that way." A new report shows that banks make an average of 217% on in-store purchases with a debit card that overdrafts.

"What banks are calling 'bounce protection' is starting to look more like a 'protection racket,'" said Eric Halperin, director of the Center for Responsible Lending's Washington office and a co-author of the report.

Sounds like racketeering to me. A couple of years ago, unknown persons accessed my bank account via non-bank ATMs and withdrew $1,300. These withdrawals occurred twice per day for three days in a row, $200-$300 per withdrawal. Even when my account was overdrawn, the bank kept paying out. By the time I discovered the fraudulent activity, I was $700 in the hole and had racked up hundreds of dollars in fees. I found a blog post detailing a similar experience but you can Google "Bank of America" fraud and find countless similar stories.

I was told by a representative that "this happens all the time" and read an article on MSN about mass ATM fraud but the bank insisted that I must have been frivolous with my PIN number and someone I knew stole the money from me. I was robbed and the bank was trying to extort even more from me. After six months of diligent calling and letter-writing, I got my money back and all the fees refunded. I immediately took my money out of Bank of America and put it into a smaller credit union.

This is what I learned about how to protect myself. Protect your credit cards. ALWAYS use your debit card as credit card by choosing "credit" when you make purchases. NEVER enter your PIN number anywhere except a bank ATM machine. Don't get cash back at the grocery store. (It's ridiculous, I know. Why would we be given the convenience if it wasn't safe?) ALWAYS shred documents with your personal information: Social Security number, driver's license number, birth date. Protect your Social Security number. Use CASH.

Rep. Carolyn Maloney (D-NY) is expected to re-introduce a bill that requires banks to report the overdraft APR to consumers, get their written consent to put them on "bounce protection" programs and give them overdraft warnings at the ATM. If you've been coerced into paying exorbitant overdraft fees, call or write your representatives and tell them to support this bill.