news-record.com

WASHINGTON (MCT) — Hoping to preserve more than $10 billion in annual fees, banks and credit unions are pushing hard for customers to accept costly overdraft protection on their debit and ATM cards.

The marketing blitz, which includes letters, e-mails and phone calls, comes on the eve of new consumer protections that are expected to strip much of the profit from overdraft fees.

Beginning Sunday, banks and credit unions no longer can approve and charge penalty fees for one-time debit-card purchases that exceed customers' account balances unless the account holders have agreed to "opt in," or accept overdraft coverage.

These transactions, along with ATM withdrawals that overdraw accounts, now will be declined for customers who don't accept the coverage. The rule took effect July 1 for customers who open new accounts.

For millions of consumers who have unwittingly overdrawn their accounts by small amounts and been stung by hefty penalty fees, the new Federal Reserve guidelines will put an end to one of the most expensive and aggravating trends in modern banking.

"For the first time in several years, customers will be able to use their debit card and ensure they don't spend more than they have," said Leslie Parrish, senior researcher at the Center for Responsible Lending, which works to end abusive financial practices. "There's still a lot of overdraft abuses out there, but this is really a great step forward."

Typically, banks charge about $34 to complete a card transaction that overdraws an account. The cash shortfall usually averages only $17, according to the Center for Responsible Lending.

For years, banks simply had denied these transactions. However, by allowing them to go through without the cardholders' consent and charging for the service, "courtesy overdraft coverage" reels in more than $10 billion in debit card fees each year, the center estimates.

Most of that money comes from a select sliver of the customer base. About 5 percent of bank customers are overdrawn 20 or more times a year and spend more than $1,600 per person annually on fees, according to a 2008 study by the Federal Deposit Insurance Corp. These customers are disproportionately lower-income, non-white, single renters, Parrish said.