Overdraft fees are drawing increased regulatory and legal scrutiny, but they can still pack a punch.
Just ask Wachovia accountholder Stu Straus, who saw a mysterious overdraft charge of $10 ballooning into $1,555.61 of debt over five years, thanks to accumulated interest and added fees.
According to an article Monday in the Newark Star-Ledger, Straus shut down his New Jersey bicycle shop in 2006, and said he closed two lines of credit with Wachovia at the time, leaving open one checking account to pay any outstanding bills. Wachovia was later bought out by Wells Fargo (WFC) in 2008.
Some of the company's bills were set up for monthly auto-pay from the checking account, and Straus told the paper that the auto-pay service on some bills might not have been cancelled as the business was winding down.
Straus said he believes he was dinged with the $10 overdraft fee back in 2007 when the account hit zero. Rather than bounce the payment, the bank paid it out of one of the credit lines Straus thought he had closed.
But the business owner said he received no statements from Wachovia or Wells Fargo until late last year, when Wells wrote to say his line of credit was being closed for lack of payment and warned he would be reported to the credit bureaus in March if the debt wasn't resolved.
"Wells Fargo was essentially using my line of credit to pay themselves for charging me fees for five years without my knowledge," Straus told Star-Ledger's Bamboozled column.
The bank told the Star-Ledger that it didn't have any evidence that the second line of credit had been closed in 2006 and would not comment on whether Straus had received any statements since then.
Straus said the bank told him that it had been mailing statements to his former business address, but no mail had been returned to the bank since December 2007.
Following numerous letters between the former bike shop owner and the bank, Straus' grousing has led to a reprieve. The bank agreed — after the newspaper got involved — to waive the charges and ensure Straus' credit score won't be harmed.
