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Overdraft Fees Remains Steep At Big Banks One Year After Reform

Overdraft Banks

By CANDICE CHOI   08/ 3/11 07:23 PM ET   AP

NEW YORK -- The country's largest banks are still charging steep overdraft fees.

A survey released Wednesday by the Consumer Federation of America found that the median overdraft fee is $35, the same as it was last year. The highest fees also remain $33 to $37 per overdraft.

The fees can be triggered if customers overdraw their checking accounts by as little as $5. In addition, the survey found that two-thirds of banks continue piling on fees if customers fail to balance their accounts within a set time. For example, JPMorgan Chase charges an "extended overdraft" fee of $15 after each five-day period that an account stays in the red.

The findings come a year after a new regulation went into effect requiring banks to obtain permission from customers before enrolling them in overdraft programs. Previously, it was industry practice to automatically enroll customers without giving them a way to opt out.

Critics said that led to consumers unwittingly racking up overdraft fees. The problem was that customers would often continue using their debit cards, not realizing they could spend more than they had in their bank accounts.

Under the new rule, customers must now actively consent to be enrolled in overdraft programs. If they opt out, their debit card would simply be declined at the register if they didn't have enough money to cover the transaction. The rule does not limit how much banks can charge in overdraft fees, however. There's also no limit on the number of times banks can continue fining customers for a single violation.

The survey by the Consumer Federation of America also found that banks still allow multiple overdraft fees to be charged in a single day. In two cases, banks hiked the total number of overdraft fines that could be charged daily.

In other cases, the survey noted that banks are making changes that benefit consumers. Earlier this year, for example, Citibank said it would start clearing checks starting with the smallest amounts first.

By contrast, consumer watchdogs say a high-to-low check clearing method increases the potential for multiple overdraft violations. But that's how most major banks processed payments last year. The banking industry has long defended the practice, saying bigger checks tend to be fore more important payments that customers want paid first.

The new opt-in rule on overdraft programs applies to point-of-sale transactions; banks can still enroll customers for overdraft protection on checks without their consent.

The Consumer Federation of America survey was based on the overdraft policies of the 14 largest banks as of June. The group noted that all surveyed banks provide lower cost forms of overdraft protection, such as transfers from savings accounts.

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Filed by Maxwell Strachan  |