WHAT TO KNOW ABOUT BANKS’ OVERDRAFT FEES AS WHITE HOUSE CRACKS DOWN

The Consumer Financial Protection Bureau has proposed new rules that would lower overdraft fees, with President Joe Biden calling the charges “exploitative.” Currently, the fee for overdrawing a bank account averages more than $26.

If a bank temporarily lends a consumer money when their account has reached a zero balance, the consumer is typically responsible for paying back both the overdrawn amount and an additional fee, which can be more than the original amount charged.

Here’s what to know:

What is an overdraft fee?

When there isn’t enough money in an account to cover a transaction or withdrawal, but the bank allows it anyway, the customer is technically “overdrawn,” and most banks charge them a fee. About 91 percent of accounts have this fee structure, according to the most recent Bankrate research.

The fees originated during a time when consumers wrote and cashed checks more frequently — so that the checks would clear instead of bouncing, if there was an issue of timing — but banks steadily increased the fees in the first two decades of the 2000s. Eventually, the fees provided banks with billions of dollars in revenue. The fees, as high as $39 per overdraft, disproportionately affect banks’ most cash-strapped consumers. A majority of overdrafts (70 percent) are charged to customers with average account balances between $237 and $439, according to the CFPB.

How can I avoid incurring fees?

The simplest way to avoid overdraft fees is to find an account that does not charge them. Online banks, in particular, now offer many accounts without these fee structures. Capital One and Ally Bank also offer accounts without overdraft fees.

The second thing to do is to opt out of the service. When opening a new bank account, you’ll be given the option to decline “overdraft coverage.” If you choose not to accept the service, your bank won’t cover overdrafts and will instead return any payments that can’t be covered as unpaid.

Other steps include setting up an alert for when your balance falls below a certain amount, and linking savings accounts to checking accounts, so that your own money — not the bank’s — will cover any shortfalls.

Will the bank ever waive a fee?

If you overdraw your account for the first time, a call to your bank could get the charge removed. Even on a second or third offense, some banks will work with customers to reverse or waive charges.

There are also app-based services that will negotiate with a bank on your behalf. In each case, the process can take up to 90 days.