Overdraft angst

Many banks automatically cover your debit or ATM card transactions when you don't have enough money in your account, even if you never asked them to do it.

It comes at a price, of course. Banks might charge $35 for each overdraft, no matter how small your transgression. Suddenly, a $3 blueberry muffin costs $38.

But the days of enrolling you in an expensive overdraft protection program without your say-so may be numbered.

Senate Banking Committee Chairman Chris Dodd says he is drafting legislation that would require banks to get your permission before enrolling you in the service. Similar legislation is pending in the House.

And two major players - Chase and Bank of America - last week announced they were changing their programs so customers can decide if they want to participate.

Not that long ago, banks would deny debit or ATM transactions on the spot if you didn't have enough money in your account. (Citibank still does.) But as the use of debit and ATM cards grew, many banks started automatically extending overdraft protection to these transactions and slapping hefty fees on overdrawn accounts.

Exacerbating the problem is that many banks don't process transactions in the order you make them, but from largest to smallest. Banks say they do this because the largest payment is likely to be the rent, mortgage or some other important bill that customers would want covered first.

But critics say this is a manipulation by banks to generate the most fee income. Processing the biggest transactions first brings the account balance closer to zero faster and can trigger more fees.

And fees can add up fast.

Just ask Maxine Given of Baltimore County, who last month sued M&T Bank, claiming the lender's overdraft program violates Maryland's consumer protection laws. Her suit seeks class action status.

Given, a senior director of finance and administration for the Fund for Johns Hopkins Medicine, was overdrawn twice in the past year and a half. All told, M&T charged her $370 in fees.

"It becomes out of control," says Given, a certified public accountant who says she monitors her account online twice a week. "You feel like there is this avalanche of fees."

One April day last year, Given had four transactions in her checking account. M&T processed the largest one first, a $2,800 mortgage payment, causing her to be overdrawn, she says. And each other smaller transaction - including $12.08 for lunch - triggered a $37 overdraft fee.

(As it turns out, M&T rejected her mortgage check the next day - for reasons Given says she doesn't know - which means she would have had enough in her account to cover the other transactions the day before.)

About a year later, Given again triggered multiple overdraft fees. The lawsuit claims she could have avoided all or some of the fees both times if M&T didn't reorder the transactions.

"They are reordering transactions to maximize their profits," she says.

Her lawsuit also claims that M&T doesn't clearly disclose that consumers can opt out of the program and doesn't notify consumers in advance that their electronic transactions will incur an overdraft fee, which would allow them to use another payment method to avoid the charge.

Given says to dispute the fees she had to take off work to go to her bank branch. The bank waived some fees.

"You feel kind of helpless. What can you do? It's like David and Goliath," she says.

In a statement, M&T says it works hard to make sure customers are educated about the bank's products and services.