How to Protect Your Money from Hidden Bank Fees

NPR.org, June 25, 2008 · For a banking industry still under the cloud of the subprime mortgage crisis, there is one silver revenue lining: banking fees, which amount to $38.6 billion a year.

The majority of those are nuisance fees — such as a fee for calling customer service too many times or closing an account early. But the biggest moneymakers are fees related to ATMs and overdrafts.

In 2006, banks and credit unions collected $17.5 billion from overdraft fees alone. According to Leslie Parrish of the Center for Responsible Lending in Washington, D.C., many consumers aren't aware that their debit card transactions can trigger an overdraft fee.

"The younger generation uses debit cards much more heavily than the older generation," Parrish says. "If policies stay the way they are, with more and more people using debit cards for small amounts, this could be a growing source of revenue for banks."

Here, a look at what consumers can do to protect themselves from getting nickeled and dimed:

What are some common types of fees that banks charge customers?

The most common charges are ATM and overdraft fees. For example, if you pull out money from a Bank of America ATM, but your account is with Wachovia, watch for a fee from both banks. Bank of America will charge you $3 for the withdrawal, and Wachovia will add on a fee of $2.50, so your total surcharges could add up to $5.50. And when you're traveling abroad, your bank may tack on a fee for withdrawing from an international ATM.

But where banks can really get you is through overdraft fees. The average overdraft fee in 2005 and 2006 was $34, according to the Center for Responsible Lending. And often, banks can charge you for two overdrafts in one by reordering transactions.

Here's the scenario: You have $100 in your checking account. In one day, you make three separate purchases — for $5, $20 and $90, in that order. The $90 purchase drops you in the negative. But banks sometimes reorder transactions from the biggest amount to the smallest, so that they can charge you two overdraft fees. Parrish says this is fairly common practice among larger banks.

Are fees always disclosed ahead of time?

Banks are required by law to disclose fees, but "they're not disclosed as well as they should be," says Ed Mierzwinski, the consumer program director for consumer advocacy group U.S. PIRG.

Fees are often "disclosed as part of a series of disclosures," Parrish says. "Whether or not people read that, with all of the documentation they're getting at that time, is another issue."

What's more, bank tellers generally aren't well-enough versed in their institution's fee structure to explain it to a questioning customer, according to a Government Accountability Office study released in January.

How much have bank fees grown in recent years?

According to the GAO study, "average fees for insufficient funds, overdrafts, returns of deposited items, and stop payment orders have risen by 10 percent or more since 2000."

What are some tips for avoiding bank fees?

When you're in the market for a bank, be aware of all of the fees upfront, and ask a lot of questions. Make sure the bank has numerous ATMs near where you work and live — or that there are merchants, such as drugstores, where you can get cash back when you make a purchase,

When you've decided on a bank, or if you already have an account, be sure to sign up for overdraft protection. You can link your checking account to either a savings account or a line of credit, which will cut your overdraft fees down to $5 or $10 per transaction, instead of $30 or $40.

For debit card users, Mierzwinski advises socking away "$100 in your account that you forget about."

Debit cards users should instead rely on cash or a credit card when they gas, book a hotel or rent a car, suggests Parrish. Those merchants will often charge the customer an "artificial hold," or an amount greater than what the consumer will owe. If the hold is greater than what's in your checking account, you could be charged an overdraft fee.

If you're feeling more drastic, Mierzwinski says avoid banks altogether and sign up with a credit union, because they have fewer — and lower — fees than banks. If you don't qualify for a credit union, ask them what you need to do to qualify.

If you can't avoid fees, what are some recommendations for disputing them?

It's not as easy as it used to be to get the money refunded. Banks have started asking employees to refuse refunds to complaining customers. According to a USA Today article, Wachovia sent internal memos over the past year pressing employees not to refund too many overdraft fees.

Parrish suggests calling the bank and asking for a refund, especially if you have a long history with the institution. But beware of the clampdown on refunds, and be ready to use some charm.

Mierzwinski agrees. "Banks are taking away the power of their telephone staff to make any decision in favor of the customer," he says. "You have to be polite, and you have to look for someone with seniority."

Is there anything else consumers can do?

The Federal Reserve has proposed a few rules that could protect customers from fees, including barring banks from reordering transactions and placing artificial holds. The agency "really wants to hear from people who are affected," instead of special-interest groups, says Parrish. Consumers can go to www.regulations.gov and comment on the proposed "Truth in Savings" rules until July 18; comments for the "Unfair or Deceptive Acts or Practices" proposal will be accepted until Aug. 4.