Debit Card Overdraft Fees Are Now Opt-In, But They Pack A Punch

In a rule that became effective on July 1, 2010, the Federal Reserve Board prohibited banks from charging consumers fees for overdrafting on ATM and one-time debit card transactions, unless the consumer opts in to an overdraft service for those types of transactions. Opting in allows a consumer to overdraft -- that is, to pay for an item with a debit card or withdraw money with an ATM card, even though the consumer didn't have enough money in her account. After overdrawing, the consumer gets hit with the overdraft fee. The consumer then must pay back the overdraft and pay the overdraft fee.

A new study by the Consumer Federation of America (CFA) of the 14 largest U.S. banks shows that the average fee is about $35, and many big banks will hit consumers with multiple fees per day, one for each overdraft. What's more, the average overdraft fee is considerably more than the average overdraft (about $20). Today's New York Times has this story on the issue.

The press release accompanying CFA's report explains how banks get consumers to pay up after they get hit with overdraft fees:

Overdrafts and fees must be repaid immediately to avoid extra fees or as soon as the next paycheck or benefit check hits the customer’s account. Banks repay themselves directly out of the consumer’s funds, making overdrafts balloon payment loans and the top priority for scarce family funds.

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