New rules on overdraft fees take effect
Only new customers currently protected by permission law
PHILADELPHIA — The end is approaching for the surprise $37 cup of coffee or $40 sandwich — the ones for which $2 or $5 went to the eatery and $35 went to your bank for overdrawing your account.
Starting today, banks may charge new customers an overdraft fee for debit card purchases or ATM withdrawals only if the bank has obtained permission beforehand to cover the shortfall.
Similar rules are set to take effect Aug. 15 for existing bank customers — a deadline that has caused a blitz of activity at banks eager to keep their share of a revenue stream that advocates say is worth more than $11 billion a year.
At least a few, including Citibank, Wachoiva Corp. and Bank of America Corp., say they will no longer routinely allow customers to spend money beyond their balances in exchange for fees that elsewhere can total more than $100 a day if a customer commits multiple overdrafts.
“This is really a result of listening to our customers, the vast majority of whom have said they don’t want to spend money that is not in their account,” said Bank of America spokesman T.J. Crawford.
But according to a Consumer Federation of America survey, 13 of the nation’s 15 largest banks are inviting custom- ers to opt in to their overdraft programs.
“We’re offering our customers a choice rather than making the decision for them,” said Barbara Nate, a spokeswoman for Wachovia, which is owned by Wells Fargo & Co.
In a customer brochure, Wachovia says the advantages of its Debit Card Overdraft Service include the convenience of being able to complete a transaction despite insufficient funds and the value of having the service available as a backup plan for purchases.
Wachovia’s brochure also notes that the service generates no fees if not used or if the account holder makes a deposit or covers the overdraft on the same business day.
Like Wachovia, many other banks are offering options for avoiding the largest overdraft fees, such as linking a checking account to a savings or credit account. And both say they are reminding customers of tools such as low-balance alerts, which can be sent to cell phones or e-mail addresses.
But advocacy groups such as the Consumer Federation, which want tighter restrictions on debit card overdrafts, are urging customers to reject the banks’ invitations for what the advocates describe as “overdraft loans.”
If it were computed as an annual interest rate, the cost of a $10 overdraft held for two weeks would range above 900 percent at all of the 15 banks surveyed, and as high as 3,200 percent, the group said.
“It’s still a very expensive way to get a short-term cash advance,” said Jean Ann Fox of the Consumer Federation.