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Banks Push Overdraft Fees as Deadline Looms

BOSTON (TheStreet) -- If you haven't opted for overdraft protection with your bank, prepare to have the service discontinued by Monday morning.

Aug. 15 is the deadline under the Federal Reserve's "Regulation E" to inform Bank of America (BAC), JPMorgan (JPM) or whichever bank you use to allow ATM and debit transactions that exceed the account balance to be covered for a fee. Because the deadline falls on a Sunday, anyone needing assistance from a human needs to act by the close of business today.

Most overdrafts from paper checks and automatic payments will continue to be covered for a fee, but ATM and debit transactions will be automatically denied.

This is the second phase of the clampdown on overdraft fees. On July 1, banks were prohibited from adding overdraft protection as an automatic feature on new accounts.

In the days leading up to Sunday, nearly anyone with a bank account has likely received mailings, emails, phone calls, ATM screen prompts and an in-branch hard-sell to keep them in these programs, a lucrative source of revenue for banks of all sizes. Don't expect the cajoling to stop any time soon, as banks keep up a full-court press post deadline to reclaim those who opted out, either by choice or inaction.

AGGRESSIVE MARKETING

A concern expressed by the nonprofit Center for Responsible Lending (CRL) is that banks and credit unions are "scrambling to pressure consumers to opt-in to overdraft coverage."

A report the group issued last week finds fault with how some numerous consultants and marketing firms have been promoting their services. Its references a consultant whose pitch suggests offering a gift or cash offer to customers with four or more overdrafts annually if they opt in. Others have advocated ways for "snatching bank revenues from the jaws of Regulation E," suggesting that "if they are in the top 29% of abusers, call them."

CRL says that those with frequently overdrawn accounts are among the most financially vulnerable. They tend to be lower-income, single, non-white and rent their homes. "Charging large fees for typically small debit-card transactions erodes these consumers' finances further," it reads, adding that the average overdraft purchase is only $17.

"They just don't lay all the facts out straight," says Rebecca Borne, senior policy counsel for CRL. "Some of the solicitations we have seen suggest that a customer will be charged a fee if their debit-card transaction is denied. In reality, we know of no institution that does this, and the Federal Reserve has been clear that to do so would raise fairness concerns. Another example is when overdraft protection is advertised as a 'fee service.' It is free, of course, if you never use it. But if you do use it, it is the highest cost credit they offer."

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