The Bite of Bank Fees

Greg McBride of Bankrate.com said, "The most consistent increases have been seen on punitive-type fees such as bounced check charges and ATM fees." (By Andrew Harrer -- Bloomberg News)

Moebs Services, which provides data to the federal government, estimates that overdraft revenue will reach $38.5 billion this year. The median overdraft fee will be $27.50 this year, up from $25 last year, Moebs said.

Consumer advocates said overdraft fees are a danger because they can quickly add up and eat into people's available cash when many are mired in debt. Banks too often charge disproportionately for the service, advocates said.

"The purpose of overdraft protection or courtesy overdraft, as it's often called, is to turn something that's like a parking ticket into a profit center," said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. "The $4 latte becomes the $39 latte after the $35 fee. Overdraft protection is a misnomer."

Since May, Lori Harris, a Laurel resident, has been the inadvertent recipient of such protection.

Early last month, she deposited money into her Bank of America checking account, but the check did not clear before several charges were posted.

Each time Harris overdrew her account, she paid $35, totaling nearly $300 in fees in May. That set off a chain of events that has left her with about $600 in overdraft fees this month.

She is now afraid to use her debit card and obsessively checks her account history. She is looking for another bank.

"I simply can't afford that anymore," she said. "I'm going to have to go to a completely cash-based type of lifestyle."

Jean Ann Fox, director of financial services for the Consumer Federation of America, said overdraft programs are often not explained when consumers open accounts, and many don't have opt-out provisions. In a survey of the 16 largest banks, the federation found that all of them charged overdraft fees without the consumer's consent.

"If I were a bank, I wouldn't want to tell you I would charge you $70 for letting you overdraw $20," Fox said.

The Federal Reserve has taken notice and is considering new rules that would crack down on automatic overdraft protection. But consumer advocates said the rules would not go far enough because, for one thing, they would not cap overdraft fees.

Meanwhile, Rep. Carolyn B. Maloney (D-N.Y.), who was instrumental in getting the new credit card law passed last month, has proposed a bill that would require banks to notify customers when an ATM or debit card transaction is about to trigger an overdraft fee and give them a chance to decline the service.