Sunday, 25 December 2011

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The approaching year was supposed to be when the big national banks, led by Bank of America, started charging customers a monthly fee for use of their debit cards.

The big banks were trying to replace significant revenue - $250 million a quarter or more - they lost when the federal government in October limited the amount they could charge merchants for handling debit card transactions. The allowable fee per transaction dropped from 44 cents to 24 cents.

Get Paid For Simple Survey
Needless to say, while the big banks have given up for now on debit card use fees, they aren't giving up on the overall goal of generating more revenue from fees. Of Wells Fargo's third quarter revenue of $19.6 billion, nearly half - $9 billion - was from fees and charges.

In mid-2010, the Federal Reserve required banks to notify customers of their overdraft services and give them the option of being covered, instead of automatically enrolling them in the service.

The choice is pretty simple: Get overdraft coverage and you debit card purchase will be completed even if you have insufficient funds in your bank account, but you'll be charged a fee for each time the bank covers your shortfall. Decline the coverage and your debit card purchase will be denied.

For the following six quarters, bank revenue from overdraft fees declined, but in the second quarter of this year it increased $700 million, according to research by Moebs Services, a financial institution researcher in Lake Bluff, Ill.

Most of those consumers probably weren't aware of the size of the overdraft fees they were setting themselves up for, nor the details of how the fees would be charged that make the whole process more lucrative for the big banks.

The median length of the paperwork to customers disclosing overdraft and other checking account policies and fees is 111 pages, according to a study recently presented by the Pew Health Group, part of the Pew Charitable Trusts, to the U.S. Department of the Treasury. Banks typically scattered key information throughout such documents and didn't summarize or collect it anywhere, Pew said.

Well, the median overdraft fee for big banks was $35 in February, up from $33 three years ago, Moebs found. For community banks and credit unions, it was $25, unchanged since 2008.

The size of the fees is out of proportion to the size of the overdrafts covered by banks, Pew found. The median amount per transaction that consumers overdrew their accounts was just $36, according to Federal Deposit Insurance Corp. figures, only a buck more than the big bank overdraft fee.

Pew said most checking accounts also are charged an additional fee, typically $25, if the overdraft fee and the account shortfall aren't paid within seven days.

What's more, despite efforts by consumer groups and class action lawsuits, banks still can maximize overdrafts by posting withdrawals ahead of deposits, and posting the largest withdrawals first - so when the account becomes insufficient there are more small withdrawals that each trigger overdraft charges.

Meanwhile, there's something easy and effective they can do, said Bill Hardekopf, CEO of LowCards.com, a credit and debit card information service.

"Overdraft protection is not a necessity and opting out is an easy way for consumers to avoid an expensive fee," Hardekopf said in a statement.

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