Groups attack bank fees on ATM, debit overdrafts

WASHINGTON (Reuters) - U.S. banks and credit unions should seek to stop charging hidden fees for overdraft protection when consumers exceed their account balance in an automated teller machine (ATM) or debit transaction, Democratic lawmakers and consumer groups said on Wednesday.

The overdraft fees are a lucrative source of income for financial institutions and House Democrats have introduced legislation that would require them to first inform consumers before assessing the fees.

Overdraft fees cost Americans $17.5 billion last year, up from $10.3 billion in 2005, the Center for Responsible Lending told a House Financial Services subcommittee hearing.

"Banks routinely permit the majority of account holders to overdraw accounts at ATMs and point of sale terminals using debit cards without warning or consent," said Jean Ann Fox, director of consumer protection at the Consumer Federation of America.

Consumers are not given a choice of deciding whether to borrow from the bank or cancel the transaction when their accounts are overdrawn, the groups said.

The American Bankers Association, an industry group, said consumers should keep better track of their transactions to avoid withdrawing more money than they have.

Nessa Feddis, the banking group's senior counsel for federal regulations, said customers already have many ways to monitor their account balances using the Internet, telephone or ATMs. "Simply put, consumers are in control of their finances and can avoid overdraft fees," Feddis told the panel.

Legislation requiring banks to seek customer approval for overdraft fees and clearly disclose their overdraft policies was introduced earlier this year by the subcommittee's chairman, Rep. Carolyn Maloney, a New York Democrat.

Rep. Barney Frank, the head of the full committee, also backs the bill.

The full committee has not yet considered the bill, which does not have a companion legislation in the U.S. Senate.

"Individuals should have notice of the charges ahead of time and the opportunity to reject the transaction before incurring the charges," Maloney said. "It's that simple."

Annual interest rates on debit card overdraft fees can be as high as 1,000 percent, she said.

The bill would also prohibit banks from posting consumers' checks and other debits to a depository account for the purpose of generating overdraft fees.

"We need legislation, because the regulators are not doing their job in this area," Maloney said.