Despite new rules on fee transparency, banks and their customers are often not on the same wavelength when it comes to overdraft protection.
A new poll by The Pew Charitable Trusts says many account holders are "still confused and unhappy" with overdraft practices and fees. More than half of those who have paid an overdraft fee recently said they don't even recall signing up for the service.
"They didn't know the bank offered overdrafts and didn't know there is a fee," said Susan Weinstock, Pew's director of consumer banking research.
Debit-card overdraft programs have proliferated over the past 15 years and are among the most-complained about of banking services. That's why the federal government prohibited banks in 2010 from automatically enrolling customers in those programs.
Too many account holders were blindsided by hefty penalty fees. Banks closed too many accounts because of negative balances resulting from overdrafts and fees, effectively banning them from the banking system.
Now customers must "opt-in" for debit-card overdraft protection, where banks will cover overdrafts that result from ATM withdrawals and debit-card purchases, and charge fees for doing so, typically $35 per occurrence.
While the opt-in rule has allowed many consumers to avoid penalty charges, many people are still feeling blindsided when they unwittingly overdraw an account and learn later they got hit with one or more fees.
Weinstock hopes the organization's new checking account disclosure form being adopted by a growing number of banks - including most of the national banks that dominate the New Jersey market - will help.
The form spells out three options:
-Option A for consumers with debit cards is the "no overdraft service" option, which means transactions that would cause an overdraft will be declined and no fee is charged by the bank.
-Option B is the "Overdraft Transfer Fee," the amount of which per overdraft is clearly posted. The overdraft transfer is covered by linking the consumer's own savings account, line of credit or credit card to the debit-card account. Typically the fee for this type of overdraft is $10, according to Pew.
-The more expensive Option C, the "overdraft penalty plan," lists the overdraft penalty fee, the maximum number of penalty fees per day, how much of an overdraw triggers the penalty fee, and the amounts and terms of extended overdraft penalty fees - which are based on the number of days the account remains in the red.
The form also lists other basic checking account fees and information on payment-processing policies and dispute resolution.
Many banks use an overdraft fee disclosure form provided by the Federal Reserve as their guide. It explains what types of overdrafts the bank will cover, and that it will not cover overdrafts on ATM and "everyday debit card transactions" unless the customer asks for that coverage and pays the associated fees, the amounts of which are listed on the form.
Weinstock said the Pew form makes overdraft coverage options easier to compare.
Bank of America, Wells Fargo, J.P. Morgan Chase, TD Bank, Citibank, Capital One and Sovereign Bank, which together hold more than 50 percent of the deposits in New Je Also from the Pew survey:
-The median overdraft fee was $35, but the average total fees for an overdraft event was $69.
-More than two-thirds of the respondents would prefer that the bank decline to make the debit-card payment if there was not enough money in the account, rather than cover it and charge a fee.
-Eight out of 10 respondents said banks' overdraft practices should be more closely regulated.
Since the opt-in requirement, the number of people getting the most expensive form of debit-card overdraft protection has dropped. Opt-in rates varied greatly at different banks, from less than 10 percent to more than 40 percent, according to a 2012 study by Consumer Financial Protection Bureau.
Heavy overdrafters, those who had 10 or more in a year, opted in at a higher rate than others, the CFPB study said.
"Some consumers prefer the ability to overdraft," said Greg McBride, senior analyst at Bankrate.com. "It is cheaper to pay the $35 overdraft fee than to have the car payment or mortgage payment bounce," he said.
The main lesson consumers should take away from being charged with overdraft fees is they should not let their balances drop below zero.
"There is really no excuse for repeatedly overdrawing your account," he said.