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Banks Under Pressure for Overdraft Rates

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Overdraft rates can be quite random in Germany.
  • Why it matters

    Why it matters

    Experts estimate that German banks demand between 4 and 12 percent from customers who exceed their discretionary overdrafts, which can lead to spiralling debt.

  • Facts

    Facts

    • On average, a heavily indebted German owes more than €34,000, or $36,900.
    • In the U.S., according to the Federal Reserve, personal debt is over $52,000 per-capita.
    • More than 19 percent of Germans get into debt because of unemployment.
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    Audio

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They are one of the best-kept secrets of German financial institutions: The interest rates charged to bank customers for overdrafts. Experts estimate that banks demand between 4 and 12 percent from their customers when they exceed the agreed-upon limits to their discretionary borrowing facility.

Up to now, the banks have doggedly ignored the historically low interest rates of the European Central Bank. This unabashed form of cashing-in has long been a thorn in the side of the German government.

But now it is seeking legislation to force the financial institutions to end this secrecy. In the future, banks will be required to post information regarding overdraft terms on their websites. “In this way, we will make it more difficult for banks to charge excessively high interest rates for overdrafts,” said Heiko Mass, federal minister for justice and consumer protection, who worked out the plans.

For many people, a bank overdraft can become a debt trap. Mr. Maas says that frequently “this is an indication that private insolvency is not very far off.”

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