U.S. & World

Nation's Largest Banks Charge Huge Overdraft Fees

NEW YORK (CBS) ― A new survey says the nation's 10 largest banks are taking advantage of their customers by charging excessive overdraft fees, and customers don't know about it.

There are, however, a few things you can do to protect yourself.

Not too long ago, you swiped your debit card to pay for a purchase. If you didn't have enough money in the bank to cover the transaction, the charge was denied. The case, with most banks, today is not the same.

"These transactions get processed and routinely approved by the bank at a $34 fee," said Leslie Parrish, from the Center for Responsible Lending.

These fees leave many customers to feel like they're being set up for financial failure, and by their own financial institutions, no less.

"I'd rather go swipe my debit card and they say 'insufficient funds' than get hit with a $20 overdraft fee," Upper West Side resident Wayne Nulty said.

And it has consumer advocates charging financial foul.

"We really feel that banks should be helping consumers in this effort, instead of stacking the deck against them," Parrish said.

Right now, critics charge, banks open up consumers to these extra-large charges by withdrawing money faster from accounts than they clear their deposits. Compounding the problem, banks clear the biggest checks first, often leaving multiple small checks to bounce and rack up fees.

"Overdraft fees are the second-largest revenue generator after mortgages," Parrish said. "So you can imagine, with the downturn in the housing market, it's reasonable to think banks are now trying to beef up their bottom line."

Overdraft fees now average almost $35, a 15 percent jump from 2005, with the biggest banks charging the highest fees.

To protect yourself, opt out of your bank's auto-enrolled protection program. Instead, link to you savings account so funds can be transferred. Or ask for an overdraft line of credit instead.

Consumer groups have asked the Federal Reserve to step in and set up some regulations. Consumers can expect to see some changes within six to 12 months.

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