Banks now need your permission to charge overdraft fees

Posted: June 30, 2010

The end is approaching for the surprise $37 cup of coffee or $40 hoagie - the ones for which $2 went to Starbucks or $5 to Wawa and $35 went to your bank for busting through your balance.

Starting Thursday, new federal rules say, a bank can charge new customers an overdraft fee for debit card purchases or ATM withdrawals only if it obtained permission beforehand to cover the shortfall.

Similar rules will take effect Aug. 15 for existing bank customers - a deadline that has caused a frenzy of activity at banks eager to keep their share of a revenue stream that advocates say is worth more than $11 billion a year.

At least a few, including Citibank and Bank of America, have chosen to opt out themselves. Both say they will no longer routinely allow customers to spend money beyond their balances in exchange for fees that elsewhere can exceed $100 or $200 a day if a customer makes multiple overdrafts.

"This is really a result of listening to our customers, the vast majority of whom have said they don't want to spend money that is not in their account," T.J. Crawford, a Bank of America spokesman, said Wednesday.

Bank of America announced its decision in March, saying it would help customers "control their finances by reducing the possibility of overextending themselves at the point of sale."

But according to a Consumer Federation of America survey, 13 of the nation's 15 largest banks - including Philadelphia market leaders Citizens Bank, Wachovia, and TD Bank - are inviting customers to opt in to their overdraft programs.

"We're offering our customers a choice rather than making the decision for them," said Barbara Nate, a spokeswoman for Wachovia, which is owned by Wells Fargo. "We always try to educate our customers as to their options."

In a customer brochure, Wachovia says the advantages of its Debit Card Overdraft Service include the convenience of completing a transaction despite insufficient money and the value of "a 'backup' plan" for purchases.

Wachovia's brochure also notes that the service generates no fees "if it is never used" or if the account holder makes a deposit or fund transfer that covers the overdraft "before the posted cutoff time on the same business day."

Officials at Citizens Bank, which has the most Philadelphia branches, say they have been busy since late April explaining to customers how the new rules may affect them.

Barb Mealmaker, a Citizens senior vice president, said the bank was not trying to persuade customers to opt in to what it calls its Standard Overdraft Practices.

"We're giving the options and educating them, and letting them make the decision on their own terms," she said in an interview.

Mealmaker said some customers welcomed the chance to avoid having to pay the bank's fees for overdrafts: $22 per item on the first day that a customer goes into the red each year, and $37 per item thereafter. "Many of them are very pleased with that option," she said.

But Mealmaker said about half of Citizens' customers, both current account holders and new ones, were opting in to Standard Overdraft Practices. She said many were worried about having a transaction declined "with a cartful of groceries, or if they have a car emergency."

Citizens and Wachovia, like many other banks, offer other options for avoiding the largest overdraft fees, such as linking a checking account to a savings or credit account. And both say they are reminding customers of tools such as low-balance alerts, which can be sent to cell phones or e-mail addresses.

But advocacy groups such as the Consumer Federation, which want tighter restrictions on debit card overdrafts, are urging customers to reject the banks' invitations for what the advocates call "overdraft loans."

If computed as an annual interest rate, the fees for a $100 overdraft held for two weeks would be like getting a loan at more than 900 percent interest at all 15 banks surveyed, and range as high as 3,200 percent, the group said. (To see the Consumer Federation's survey, go to http://go.philly.com/overdraft)

"It's still a very expensive way to get a short-term cash advance," said Jean Ann Fox of the Consumer Federation.


Contact staff writer Jeff Gelles

at 215-854-2776 or jgelles@phillynews.com.

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