Overdraft fees still baffle bank customers

Nearly two years after the Federal Reserve began requiring banks to get customers' permission before subjecting them to overdraft practices, many account-holders are still surprised when they are charged overdraft fees for debit-card purchases or ATM withdrawals that could have been declined, says a new study financed by the Pew Charitable Trusts.

The Pew study found that more than half of those hit with overdraft fees did not believe they had opted in to the policies, which enable banks to approve purchases or withdrawals for customers short of funds and then charge them fees for the transactions. Pew says median bank overdraft fees are $35.

Pew has focused on unexpected overdraft fees as part of its Safe Checking in the Electronic Age Project.

Overdraft fees, which the economic-research firm Moebs Services says generated about $30 billion last year, have also been criticized by advocacy groups such as the Consumer Federation of America and since February have been the subject of an inquiry by the federal Consumer Financial Protection Bureau.

The study, based on a survey of more than 6,000 people in March and April, found about 10 percent had been charged for an overdraft during the previous 12 months for a purchase or cash-machine withdrawal.

Many of the 606 respondents who had paid an overdraft fee did not understand key aspects of their banks' policies, said Susan K. Weinstock, director of the Pew checking project.

"There is so much consumer confusion about this service," Weinstock said. "Seventy-five percent of overdrafters would prefer to have a transaction declined rather than have it go through and pay the $35 fee."

Pew recommends requiring banks to label the fee an "overdraft penalty," to distinguish the underlying programs from cheaper alternatives that most banks offer. Weinstock said customers who opt to cover overdrafts from a savings account or credit line pay a median fee of $10 for the transfer.