Pay Bank Fees Like a Loan

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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.

The actual payback program is accomplished in two steps, according to the ING Overdraft Line of Credit Web site.

  • How do I repay the Overdraft Line of Credit balance? Make a deposit into your Electric Orange. You can do this by using the ‘Transfer Money’ tab. Any recurring deposits, either through Direct Deposit or an Automatic Savings Plan, will also count as a payment.
  • How do I pay the interest on my Overdraft Line of Credit balance? At the end of each month, ING will automatically subtract any interest owed from your Electric Orange balance. If you dip into your Overdraft Line of Credit at any point in the month, the interest will be deducted at the end of that month.

Since rolling out the new overdraft program, ING has seen business perk up. The company says that business has picked up by a whopping 70%-80% in the past two months.

If the competition doesn’t fall in line with ING, expect that trend to continue.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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