The Sneaky Ways Banks Rack Up Overdraft Fees

NEW YORK (MainStreet) — Consumers are expected to pay $38 billion in overdraft fees in 2011, more than any year in history, as banks resort to various degrees of subterfuge to rack up overdraft costs for customers, according to a new report from the Pew Research Group.

Legislation passed last year requires banks to get their customers to opt in to overdraft protection, rather than making this the default option, but Pew found that banks may withhold key information about the full range of overdraft options available, including one where the bank temporarily transfers funds from one account to the other for a fee of just $10, in order to get more customers to sign up for the more expensive choice.

Pew analyzed 250 types of checking accounts from the 10 biggest U.S. banks and found that the vast majority offer alternative protection plans, but are not required to disclose information about the price of these lower cost options when asking consumers if they’d like to opt in for overdraft protection. In fact, only Bank of America made information about overdraft penalty fees easily accessible to customers on its website, while the other nine banks did not.

As if that’s not bad enough, banks sometimes resort to processing withdrawals from a checking account prior to deposits, in order to increase the amount the account is overdrawn by, potentially driving up total fees. Of the 10 banks that Pew analyzed, all but two reserved the right to employ this tactic.

Perhaps as a result, the median penalty fee that consumers currently pay when they overdraw their account is $35, based on Pew’s study, even though the median amount consumers actually overdraft is just $36. What’s more, banks charge an average fee of $25 on top if the initial overdraft fee isn’t repaid, or if the initial overdraft fee has yet to be repaid, typically after seven days have elapsed.

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