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Friday, September 25, 2009

2 banks change rules on overdraft fees

by Teresa Mears

Here's a small victory for consumers:

Bank of America and JPMorgan Chase are planning to overhaul their debit card programs, changing the way they credit transactions and allowing customers to opt out of overdraft protection.

We'd like to think they're doing it because that's what the customers want, but they might have been just a teeny bit influenced by moves in Congress to crack down on overdraft fees.

Members of Congress have used words like "criminal" and "rip-off" to describe the practice of letting people overspend and then charging them fees without warning, The Washington Post reported. Customers are outraged that banks have raised fees, even as the government is investing vast sums to rescue the industry.

"People out there are getting whacked," said Sen. Christopher Dodd, who is drafting legislation that would require banks to get permission from customers rather than doing automatic overdrafts. "They should have the right to say, 'Deny me the transaction.' "

Overdraft fees are big business for banks and are expected to yield more than $38 million this year.

Overdrawing your account by a small amount of money, spread over several transactions, can cost hundreds of dollars in overdraft fees.

Rather than refuse to process a debit transaction when the account is out of money, banks approve it and then charge a hefty fee, $16 to $35 per transaction. That means an outing with six transactions could cost $210 in overdraft fees, even if you spent only a few dollars more than the amount in your account.

You might figure you could save yourself from these fees by telling the bank you don't want it to approve any transactions if you're overdrawn. But many banks don't allow you to do that.

And T at Savvy Frugality even had a problem with the bank processing the debit transactions first, charging fees and only afterward processing a paycheck deposit, even if the paycheck deposit happened first. When T protested, the charges were reversed, but T is still looking for a new bank.

Beginning Oct. 19, Bank of America customers will be able to opt out of overdraft protection, and new customers will be asked whether they want overdraft protection when they open their accounts.

Chase also plans to allow customers opt out of overdraft coverage. Plus, the bank says it will now credit bank transactions chronologically rather than debiting the highest amount in a day first. So if you make six transactions and only the last one overdraws your account, you'll be hit with only one overdraft fee. Currently, banks often debit the largest transaction first, which causes more of the day's transactions to incur overdraft fees.

Bank of America says it won't charge fees for overdrawing an account by less than $10 in one day and will charge a maximum of four overdraft fees per day, at $35 per overdraft. Chase will no longer charge fees when accounts are overdrawn by less than $5 and will cap the number of overdraft fees a day to three.

No word yet on whether other banks plan to follow suit.

While you're waiting for the new rules to take effect, or if you're at a bank that won't allow you to opt out of overdraft protection, be vigilant to save yourself from those hefty fees. If you think you've been charged unfairly, ask for a refund. You may get it. And, Flexo at Consumerism Commentary has 10 tips for avoiding overdraft fees.