Don't get dinged by overdraft fees

FROM THE EDITORS OF CONSUMER REPORTS Published: June 18, 2012

High-profile hikes in checking-account fees by big banks have drawn more attention recently than overdraft charges, those sneaky debit-card fees that can add $35 to the cost of a $3 cup of coffee, according to Consumer Reports. Despite federal rules on overdraft fees that went into effect in 2010, banks are still pulling in billions of dollars from them.

That's because many bank customers have opted in to overdraft-protection programs, which allow you to use your debit card for purchases even if you don't have enough money in your account to cover the payment. Each overdraft incurs a fee of about $30 to $35.

Under the 2010 regulations, banks must ask you to choose overdraft protection rather than enroll you automatically. If you opt out, you can still be charged a fee if an overdraft occurs from a check you've written, an online payment or an automatic recurring debit.

Banks aggressively market overdraft protection to customers, CR warns. A 2011 survey of checking-account holders by the Center for Responsible Lending found that 33 percent had opted in, and many said they did so to avoid fees.

Moebs $ervices, an independent financial-research company in Lake Bluff, Ill., surveyed banks in 2011 and found a much higher opt-in rate: 77 percent. Last year, Moebs says, banks took in $31.6 billion in overdraft fees.

$120 MISTAKE, $506 IN FEES

In February, the federal Consumer Financial Protection Bureau announced it was looking into overdraft programs. It is focusing on the practice of processing daily checking transactions -- checks, bill payments, debit-card purchases and ATM withdrawals -- in order of size, starting with the largest first. An account can be quickly drained, and banks can maximize the number of overdraft fees.

A 2010 class-action lawsuit against Wells Fargo in California, which resulted in an order that the bank pay $203 million in restitution to customers, highlighted how overdraft fees can spin out of control.

One plaintiff, Erin Walker, an 18-year-old who had just opened her first bank account, was charged $506 in fees over a one-week period for an overdraft of about $120.