Pay Bank Fees Like a Loan

What if you could pay back bank fees owed on overdraft charges like you would a normal loan — with a nominal interest rate? That’s the novel approach offered by ING Bank (Stock Quote: ING), which is eliminating standard overdraft fees and replacing them with lines of credit with 7.25% interest. Here’s how it works, and why consumers might start flocking to ING.

According to the U.S. Treasury Department, financial institutions earned more than $38 billion in overdraft fees in 2009. But provisions in the recently-enacted Credit Card Accountability, Responsibility and Disclosure Act include an option in which bank customers could decline the overdraft coverage that leads to so many of those $35 charges.

Clearly, bank customers don’t like those overdraft charges. In fact, “hate” may not be too strong a term to describe the sentiments of bank customers.

Sensing a golden marketing opportunity, ING jumped into the fray this month with a new program that significantly decreases the amount of overdraft fees. In lieu of a straight-up charge, ING offers customers the ability to rack up overdraft fees (up to $500) and pay back the overage with interest — currently 7.25%.

The move meets two bank customer goals — it negates the experience of being turned down at the cash register if a debit card is rejected for insufficient funds. And, it keeps a lid on spiraling overdraft costs. Before, bank customers would “owe” the industry average of $35 if their checking accounts were overdrawn by $100. But an ING customer, under the new plan, would only owe $7.25 in interest under the same deal.