Banks Charging Depositors Immediately For Overdraft Fees

August 4, 2008 10:58 a.m. EST

Washington, D.C. (AHN) - Many U.S. banks are starting to charge depositors for overdraft fees even before the transaction is completed.

Payments on debit cards with insufficient funds are immediately charged $35 or more. Banks previously charged an overdraft fee if the amount in the account was not sufficient to cover a signature debit transaction, which could take days to clear. By making a deposit to the account, the account holder could avoid the overdraft charge.

The Center for Responsible Lending hit the growing practice as another method for banks to manipulate bank account holders balances to collect more overdraft fees, said Leslie Parrish, a senior researcher. But banks say they provide depositors with correct information about their true balances.

To address this concern, the Federal Reserve proposed a regulation to give depositors the right to demand that banks deny transactions that would overdraw their account.

The public has until 5 p.m. Monday to comment on proposed Fed rules on overdraft fees and credit card practices. Among the banks that have been collecting the overdraft fees prior to the transaction are Bank of America, TD Banknorth and SunTrust.

According to Federal Reserve chairman Ben Bernanke, in his semi-annual testimony on the economy given to the Senate Banking Committee on July 15, the board got more than 20,000 letters responding to the proposed rules on bank overdraft services and credit card charges.