Banks make mint off overdraft fees - Lenders offer the service to protect customers from bouncing checks -- then charge them an average of $34 a transaction for debit-card and ATM overdrafts.

By MSN Money staff

Banks made 35% more money off overdraft fees in 2008 than they did just two years earlier, according to a report released Tuesday by the Center for Responsible Lending.

That's no accident, the watchdog group says.

"Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables," said CRL senior researcher Leslie Parrish.

Banks raked in $23.7 billion last year just from overdraft-protection fees, the report found, and an additional $10 billion from nonsufficient-funds fees (watch the video for more).

Overdraft fees differ from old-fashioned bounced-check fees. Banks used to reject a check or debit transaction if the account had insufficient funds, then hit the account owner with a fee.

Bankrate.com, in its annual study of checking account fees, found the average nonsufficient-funds charge rose to $29.58 in 2009, an increase of more than 2% from the previous year.

But now most bank customers are enrolled in overdraft-protection plans -- automatically, CRL says -- in which overdrafts are paid and the owner is assessed a fee, which it said averages $34 for each overdraft.

What's worse, the Center for Responsible Lending says, the most common trigger (44%) is a debit-card transaction of just a few dollars that virtually all bank customers would prefer be rejected.

A survey of its member banks conducted by the Federal Deposit Insurance Corp. found that about one in four checking accounts became overdrawn in the course of a year.

One out of seven accounts, the FDIC found, was overdrawn five or more times. For the 51 million Americans who overdrew their accounts last year, the average hit from fees was $470.

The Center for Responsible Lending is asking regulators to:

  • Require that institutions deny debit-card purchases and ATM withdrawals, without charge, if the funds aren't available at the time of the transaction.

  • Allow an overdraft fee to be charged only if the lender provides the customer a real-time warning and the choice of accepting or declining the overdraft transaction and its accompanying fee.

  • Require that overdraft fees bear some relationship to a lender's cost of covering a shortfall.

Last month, Bank of America, Wells Fargo and JPMorgan Chase announced reduced overdraft fees and said they would allow customers to opt out of overdraft protection. Bank of America said it wouldn't levy fees on accounts overdrawn by less than $10; JPMorgan and Wells Fargo said they wouldn't charge for those overdrawn by $5 or less.

Published Oct. 6, 2009

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