Sure, Stephanie Matthews can count. And she's technologically savvy enough to monitor her bank account online.
Nonetheless, she made a $15 purchase at the Wal-Mart in Fruitland that overdrew her M&T Bank checking account by $2.
The transaction cost her $37.
The Salisbury wife and mother with two jobs is 19 and, by her own admission, sometimes careless with accounting. She also represents two statistical groups that banks and industry watch groups say account for the bulk of overdraft fees for which federal regulators are drafting rules to protect customers:
Matthews is among consumers 18 to 25 years old, a demographic that an FDIC report in 2008 said accrued overdraft fees more than any other age group;
Like most consumers who overdraw their checking accounts, her bank processes the transaction, then recovers the money along with an overdraft fee from her next deposit.
At issue is whether banks should accept transactions when there are insufficient funds in a checking account. Critics of the banking practice argue that they should not, especially if the financial institution has not warned the customer of hefty overdraft fees that could total as much as $39 per transaction.
"The bank will let you swipe your (debit) card, take money when there's not enough money in your account," Matthews said. "I'd rather not be able to get the money out."
The Federal Reserve has drafted rules that, if implemented, would require banks and credit unions to give customers the choice to either opt in or opt out of overdraft protection programs. Customers who opt out likely would see purchases or ATM withdraws rejected when account funds are insufficient.
According to Moebs Services Inc., a financial research firm, 86 percent of banks offering the service already offer opt-out options.
Nessa Feddis, vice president and senior counsel at the American Bankers Association, says that despite criticisms, studies show that many consumers appreciate bank overdraft protection programs that allow transactions to go through despite insufficient funds -- and associated overdraft fees.
"Banks have been paying overdrafts and charging for them since the beginning of checking accounts; what's changed is electronic banking," Feddis said in an interview last week. "The Federal Reserve found that most people expect, understand and value having overdrafts paid, especially for important transactions, not just for mortgages, rent, but also for utilities, cable, et cetera. In a lot of cases, consumers will have to pay a fee to the person they gave a check if the check bounces.
The consumer is in the best position to know what their balance is."
Overdraft fees are not designed for banks to profit, but rather, to discourage consumers from writing checks or making debit card transactions when there are insufficient funds in their checking account, Feddis says.
"It's like a parking ticket; it's intended to encourage people to manage their account," she says.
"Many banks don't charge fees for small amounts (overdrawn), although they don't advertise it."
Moebs Services says 35 percent of all financial institutions allow consumers to overdraw their accounts at an ATM or with a debit card, charging a median of $26 for this service. The research firm said in a news release that it polled more than 2,000 commercial banks, savings institutions and credit unions in June, and found that the national median for overdraft fees on consumer checking accounts, debit cards and ATMs had increased to $26 per incident in 2009 from $25 per incident in 2008.
"This is the first time in our 22-year history of collecting this data that we have seen OD fees increase during a recession," said Mike Moebs, CEO of Moebs Services, whose firm collects and analyzes pricing trends for government agencies such as the Federal Reserve and General Accounting Office, and financial institution clients.
Despite the number of overdrafts, Feddis considers the 75 percent of the general customer population that had none. "Twenty five percent did have them," she said.
"Forty-six percent of 18- to 25-year-olds were assessed overdraft fees, but 54 percent had no overdrafts. Only 12 percent of people 62 and over had overdrafts."
Matthews, the M&T customer, admits that her overdraft was a result of her own failure to monitor her checking account balance.
"I check my account online, so the overdraft could be on me," she said last week outside an ATM in Salisbury. "I thought I had (money) in there."
At PNC Bank, where overdraft fees range between $31 and $35 per transaction, free services are in place that help customers monitor accounts and balances and avoid overdraft fees, said Pat McMahon, spokesman at the Pittsburgh-based bank.
A Virtual Wallet online financial tool, for instance, launched last year featuring three accounts in one: a savings component with attractive interest rates; a checking account for both check-writing and debit cards; and a reserve, or grow account, that allows customers to transfer money from the other accounts. A Virtual Wallet Student component geared toward the 18- to- 25-year-old demographic launched recently and enables customers to make transactions electronically, without visiting a bank branch, he said.
The bank designed the student component recognizing that 18- to- 25-year-olds will be the country's largest demographic by the year 2017, McMahon said.
"The system will keep an eye on the account; students have the opportunity for their parents to monitor their account and to transfer in funds," he said. "There is a 'danger days' feature whereby it flags you when you are at risk of going over," McMahon said. "If the gas bill is due and it's $180, and you have $160 in the account, it will flag you."
Effective Sept. 25, PNC also is eliminating an enrollment fee for overdraft protection, McMahon said. "Now, we charge $15 to sign up for overdraft protection," he said.
Requests are noticeably up for youth education sessions in financial literacy, says Jayme Weeg, president at Junior Achievement of the Eastern Shore.
The nonprofit agency based in Salisbury partners with financial institutions and other agencies to provide students in grades Pre-K through 12 programming that also includes work readiness skills and entrepreneurship.
"We've had an increase in the number of calls from parents and schools, especially for financial literacy," Weeg said last week.
"Programs have doubled in size in the last two years."
The demand comes as Junior Achievement, like other nonprofits, struggles to raise money to serve more, she said. "Our budget is the same; but now we're trying to raise extra funds because of the doubling of programs," she said. "If we want to fix our local economy and make students financial sound, we need to focus on education."
Marty Neat, president and chief executive officer at Salisbury-based First Shore Federal, is a long-time supporter of Junior Achievement with a message for young people: "You shouldn't spend money you don't have."
"That's the age-old rule," he says.
Years ago, checking-account transactions took days to clear a bank, allowing customers more time to deposit enough money to cover bad checks. Today, it is a matter of minutes, he said.
"You can't depend on that any more," he said. "Technology giveth, and it taketh away."
First Shore Federal, which Neat says boasts fees much lower than its commercial counterparts, offers customers a Companion account that allows for the transfer of money from a savings to a checking account to skirt an overdraft.
Complexities of the industry underscore the value of the small-town institution like First Shore Federal, which has skirted many of the issues facing some of the larger commercial counterparts, said Neat, a member of the American Bankers Association's Compliance Committee. His bank's primary focus is on savings, with more "established" customers than teens and young adults starting in the workplace, he also said.
"Our strongest feature is being a local-managed institution," he said, and cited an 8 percent increase in assets the last year.
"That's appreciated more today -- economic problems with banking ended on Wall Street, not on Main Street. We're healthy."
Cassie Dadzie, a 25-year-old student at the University of Maryland Eastern Shore, closed her account at Bank of America and joined the State Employee Credit Union where checks not over $50 go through despite insufficient funds in her account, she said.
Dadzie also bought a prepaid debit card that she loads with money, similar to a prepaid phone card.
When she wants to make a purchase or pay a bill, Dadzie simply swipes her card or gives the account number. When funds are exhausted, she goes to Wal-Mart, where she bought it, and adds more money. Her monthly service fee is $3. By comparison, the monthly service fee on her credit union checking account is $15, she said.
"I had so many overdraft fees at Bank of America; with the prepaid card, there's no overdraft fee," she said. "Prepaid helps people with bad credit. I don't have to touch my checking account (funds). I can never mess up."