For years, banks have charged customers large fees for overdrawing their checking accounts. Now a growing number of institutions are charging customers such fees even before the transaction overdraws their account. It appears that Bank of America and TD Banknorth started doing it earlier this year. SunTrust, among other banks, had been doing it for a few years. Here’s how it works: If you pay with your debit card, some banks will now charge you a fee — $35 or more — if you don’t have funds in your account at the time you sign for the purchase.
Previously, customers didn’t get charged this fee unless they were short of cash when the signature debit transaction cleared a few days later. While the signature debit transaction was pending, under that situation, consumers could often deposit money to cover any potential overdraft. Leslie Parrish, senior researcher at the Center for Responsible Lending, believes that this is another way for banks to “manipulate account holders’ balances to spur more overdraft fees.” Regulators are now considering whether to crack down on overdraft practices. The Federal Reserve has proposed a rule to give customers the right to demand that banks deny transactions that overdraw their account. The Fed has also asked for comments on banks’ processing of transactions from high-to-low dollar amount. This practice, according to research by USA Today in 2006, often triggers more overdraft fees than if banks paid the transactions in the order they were received.
USA Today reported that in 2007, banks collected a record $45.6 billion in overdraft fees from consumers, up 50% from 2001. This information came from Moebs Services, a consulting firm. That firm recommends to minimize fees, consumers should keep track of their account balances and seek out small banks, which often have lower fees. Most folks don’t understand the various fees charged by their own banks and many of us don’t take the time to find out what fees and charges are on our bank statement. I would recommend that all consumers get a good understanding of how their banks operate when it comes to fees and charges.
Source: USA Today
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