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New federal rules on overdraft fees

New federal rules to protect consumers from being surprised by hefty overdraft fees on debit cards transactions have come a little too late for Stephanie George Hirschberg.

The Ellicott City artist says she tries to leave more than enough money in her bank account to cover debit card purchases. Besides, she adds, the bank usually denies transactions when her funds are too low. But not last month.

A dozen of George Hirschberg's transactions over a few days sailed through, even though she didn't have enough cash in her account. Each time, she was slapped with a $37 overdraft fee, or $444 total.

Banks say they automatically cover overdrawn debit transactions to spare customers the embarrassment of having a transaction denied. Laments George Hirschberg, "I'd prefer to be embarrassed than out 440-some dollars."

Such fee shocks will soon end, thanks to long lobbying by consumer advocates. The Federal Reserve is requiring financial institutions to get your permission to enroll you in a program that covers overdrawn debit and ATM transactions for a fee. The rules took effect July 1 for new customers and will kick in Aug. 15 for everyone else.

Be aware, your bank can still enroll you without your say in overdraft programs for checks or automatic bill payments.

Banks recently have sent out notices asking customers if they want to sign up.

"We believe that consumers should have a choice," says Carol Kaplan, a spokeswoman with the American Bankers Association. And for some, overdraft protection is important, she says.

She points to a survey last year of 1,000 consumers that found 17 percent of them paid an overdraft fee in the previous 12 months, and of those, 96 percent were glad the bank covered them.

Consumers like the comfort of knowing that, even if they are short on cash, their transactions will be covered whether they are eating at a restaurant or facing an emergency, such as a sick child rushed to a midnight clinic, she says.

"It's important to the banks' bottom line, but not important to you," says Jean Ann Fox, director of financial services for the Consumer Federation of America. The industry earned $23 billion from fees associated with overdrafts, and about half of that could disappear if customers don't sign up for debit and ATM overdraft protection, she says.

If you don't want this service — and, frankly, this protection is not worth the cost — ignore the letter from your bank. Or if you signed up and then decide you don't want it, notify the bank.

Worried about being overdrawn? Consider cheaper alternatives.

You can have your accounts linked so that the bank will transfer money from savings to checking when there's a shortfall for a fee of $5 to $10, Fox says. Or, bank online and make your own transfers for free when you see your checking account running low, she says.

You also can link your checking account to a line of credit or credit card that can be tapped to cover an overdraft, she says. The interest and any transfer fee you may pay will still be less than an overdraft fee, she says.

George Hirschberg won't be signing up for overdraft protection. And she didn't accept the $444 in fees without a fight. (All but one of her dozen transactions were less than the bank's $37 overdraft fee.)

She visited her M&T; Bank branch to complain, and the manager agreed to waive half the fees.

M&T; spokesman Phil Hosmer declined to comment on George Hirschberg's case, citing customer privacy. But Hosmer says the bank is making changes to its overdraft policy.

Starting Aug. 13, M&T; won't charge an overdraft fee on transactions under $10. And it will post ATM and debit transactions, which tend to be small, to customers' accounts before checks. This will help prevent triggering multiple overdraft fees, he says.

Overdraft fees

A survey of the 15 largest banks by Consumer Federation of America found:

Average overdraft fee: $35

The majority charge $15 to $36 if the overdrawn amount is not repaid within a few days.

Fees on $100 overdraft, repaid after two weeks, could equal an annual percentage rate of more than 900 percent.

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