Battling back on overdraft fees

You may not realize it, but the odds are good your checking account is covered by an automated overdraft program at your bank. And, if you use it — something you might not even be aware of at the time — you could pay interest rates that are extraordinarily high.

After surveying 462 banks, the Federal Deposit Insurance Corp. (FDIC) said in a recent report that 75 percent of them automatically enroll customers in overdraft programs.

If, for example, customers with $5 in their accounts try to withdraw $25 through an ATM — or write a check or make a debit-card purchase for $25 — banks will use a computer program to check whether to cover the transaction.

If they do, they generally charge fees of $10 to $38, with the median overdraft fee $27.

Customers making a $20 overdraft on their debit cards can incur an annual percentage rate of 3,520 percent if they repay it in two weeks, assuming a $27 fee, according to the FDIC. That towers over rates found for payday loans, credit cards and other forms of short-term borrowing.

The automated plans are different from linked-transfer accounts or line-of-credit agreements, where banks dip into a customer's savings account or credit line to cover overdrafts.

The fees involved in these programs are generally much lower, the FDIC says, but customers often have to take the extra step of opting into them.

To avoid high fees, the Center for Responsible Lending suggests consumers join these programs, or at least opt out of the automated program.

Members of Congress have proposed new restrictions on overdraft fees, hoping to force banks to give notice to customers when a transaction could trigger an overdraft.

"It's the customers' money — they should decide whether they want to pay for overdraft coverage or not," says U.S. Rep. Carolyn Maloney, D-N.Y.