Become a digitalPLUS subscriber. 99¢ for 4 weeks.
BusinessMoney

Regulators focusing on bank overdraft programs

ConsumersBank of America Corp.BankingFederal Deposit Insurance Corporation

Some banks soon will find it more difficult to slap consumers with overdraft fees — a boon to customers who discover that one misstep can lead to a cascade of penalties.

Guidelines that take effect next month will prohibit thousands of small banks from processing transactions in order of the highest dollar amount to lowest — a practice that empties customer accounts faster and triggers more overdrafts.

Similar guidelines could be in store for the big players, too. And one major bank, Citibank, announced recently that it would no longer process paper checks from high to low — a move that could encourage competitors to follow suit.

Banks for years have been accused — sometimes in consumer lawsuits — of manipulating transactions in a way that has generated billions of dollars in overdraft fees annually.

"Overdraft fees became the crack of banks. They got hooked on it," said Ed Mierzwinski, a program director for U.S. Public Interest Research Group in Washington.

It's been only in more recent times that regulators have tried to cure them of that addiction.

Regulators last summer, for example, began requiring banks to get your permission before enrolling you in overdraft protection programs for debit card transactions. So unless you sign up, you won't get hit with a $35 fee if you overdraw your account by buying, say, a $3 cup of coffee with a debit card. Instead, your transaction will be denied and you might have to pay with cash.

Now regulators are adopting additional guidelines on overdrafts.

The new guidance from the Federal Deposit Insurance Corp. will kick in Friday for the 4,640 small banks it regulates. (The guidelines apply to automated overdraft programs, not cases in which bank employees decide to cover a transaction because they know the customer.)

The FDIC wants banks to monitor the accounts of chronic check bouncers. Once someone pays more than six overdraft fees in a year, banks will have to reach out that customer with information on lower-cost alternatives to pricey overdraft programs.

For example, a customer can link a savings account to checking so the bank can transfer money from one to the other when the balance is low. Or, a consumer can apply for a line of credit to cover overdrafts. Both options cost money — but not as much as an overdraft fee.

The Office of the Comptroller of the Currency started accepting public comment this month on its guidance for overdraft programs at large national banks.

The federal regulator says it's concerned about banks' "excessive reliance" on overdraft fee income and their processing of payments to intentionally maximize overdrafts.

But consumer advocates say at this stage the OCC proposal is too vague.

"We're very concerned that this guidance won't have meaningful impact," says Rebecca Borne, senior policy counsel for the Center for Responsible Lending. She suggests consumers weigh in on the OCC proposal and demand greater protections.

At least one large bank isn't waiting for the OCC to act.

Citibank says consumer feedback has led to the decision to stop processing paper checks from the highest amount to lowest beginning late next month. It will process them from low to high.

"We think it's the right thing to do for our customers," Citi spokeswoman Natalie Marin says in an e-mail.

PNC and Bank of America, big players in the Baltimore market, say they will continue to process checks from high to low — because, they say, that's what customers prefer.

"Customers want their largest purchases processed first," says PNC spokesman Fred Solomon. "Those are the most important to them, including mortgages and car payments."

Bank of America spokeswoman Anne Pace says check order hasn't been a problem for customers. The bank saw complaints drop off after it eliminated overdraft fees on debit card transactions a year ago, she says.

M&T Bank, another major institution here, says it first processes debit card purchases, ATM withdrawals and online bill payments — which tend to be smaller — before checks.

The landscape on overdraft fees is better for consumers now than it was a year ago. But you still need to watch your account balance so you don't get hit by hefty fees.

eileen.ambrose@baltsun.com

  • Text BUSINESS to 70701 to get Baltimore Sun Business text alerts
  • Copyright © 2014, The Baltimore Sun
    Related Content
    ConsumersBank of America Corp.BankingFederal Deposit Insurance Corporation
    • Consuming Interests blog
      Consuming Interests blog
    • Pictures: Tips to cut down your grocery bill
      Pictures: Tips to cut down your grocery bill

      Is it possible to eat for $7 or less a day? Zack, an aspiring comedian, says he does it. Here's how, along with more strategies anyone can use. --Kimberly Palmer, U.S. News & World Report

    • How to find bargains
      How to find bargains

      Throughout the year, I write tips on how to get bargains and deals on a variety of items and services. For a comprehensive guide to markdowns, discounts and strategies to save money, see The Best Bargains, from the August issue of Kiplinger's Personal Finance magazine. Below you'll...

    • 10 places (beside the newspaper) to find coupons
      10 places (beside the newspaper) to find coupons

      When the Frugalista grocery shops, other people in line are surprisingly supportive of the coupon use going on, even though it takes me longer to check out. Other shoppers always want to know where I get all those coupons. I get them everywhere. Newspapers are far from the only place to find...

    • How to stretch your paycheck
      How to stretch your paycheck

      document.write (""); You keep asking yourself: Where has all the money gone? Of course, you have a good idea: It has gone to spending on groceries, cell phone and cable bills, mortgage and insurance payments, and maybe even on a weekly night out for dinner and on a daily cup of latte....

    • Extraordinary uses for ordinary items
      Extraordinary uses for ordinary items

      Some ordinary, unassuming household objects have super powers. And most of these items cost less than a couple of bucks. So the next time you stain a shirt, smell something funky or think about tossing a banana peel, check these 100-plus uses first. Not only will you be going green, you'll...

    Comments
    Loading