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Banks tweak overdraft policies

By Marcie Geffner · Bankrate.com
Monday, August 22, 2011
Posted: 3 pm ET

Overdraft fees charged by major U.S. banks remained largely unchanged from 2010 to this year. But many banks tinkered with their overdraft policies in ways that might cost consumers more (or less) money if they incur an overdraft.

The median bank overdraft fee was unchanged at $35 with initial fees ranging from $33 to $37. A few banks charging tiered fees based on the number of overdrafts during a 12-month period, according to a new survey of 14 banks by the Consumer Federation of America, or CFA, an advocacy organization in Washington.

Most banks set a threshold, such as $5 or $10, to trigger an overdraft fee and charged a second flat or per-day fee if the overdraft remained unpaid after a set number of days. Nearly all banks set a limit on the number of fees charged in one day.

A single $100 overdraft, repaid in two weeks, continued to be costly, especially if the fees were computed as if the overdraft were a short-term closed-end loan. On that basis, interest rates ranged from 910 percent to 3,250 percent per year.

All of the banks allowed customers to use a savings account, credit card or overdraft line of credit to avoid overdrafts. These services also involved fees.

Last year, almost all of the big banks processed the largest payments first or reserved the right to do so, maximizing their fee revenue, according to the CFA. This year, some banks have started to process smaller payments first or process payments in the order they were received.

Some banks have different policies for different types of payments. For example, debit point-of-sale, or POS, and ATM transactions might be processed one way while checks might be processed another way.

The CFA survey data were collected in June from websites, calls to customer service centers and visits to branches. The surveyed banks were: Bank of America, BB&T, Capital One, Citibank, Fifth Third Bank, HSBC, JP Morgan Chase, PNC Bank, RBS Citizens, Regions, SunTrust Bank, TD Bank, U.S. Bank and Wells Fargo.

Bank overdraft fees and terms are complicated and can change at any time. Consumers should review their bank's policies and ask how any changes will affect their personal banking practices.

Follow me on Twitter: @marciegeff

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