How to Avoid Those Nasty Bank Overdraft Fees

(MoneyWatch)  When a little white postcard from Bank of America arrives for my son, I shudder because I know what it is without opening it: another $39 overdraft fee from Bank of America. So far this year, he's piled up probably five or six. He's a college student and lives on a shoestring. But, thanks to overdraft fees, the shoestring has become a thread.

Don't tell me he should be more responsible and keep better track of spending. That goes without saying -- and his dad and I have said it to him over and over in rants that contain lots of bleep-worthy words. But even I can understand that when you're out doing errands, using a debit card, it's not always knowable when the last pizza or mocha latte sends you into O.D. territory. And, if you buy a batch of items on the same afternoon, say, shaving cream at Walgreen's (2.29), tube socks at Target ($10.99) and a notebook at Staples ($3.79) for a total of $17.07, you can wind up with overdraft charges of $117. And don't even get me started on the extortionate interest rate which usually translates to an APR well over 100%--basically for a loan that nobody ever wanted.

There's a simple solution. Banks could decline withdrawals at the ATM or the point-of-sale if you don't have enough in your account. True, you would be embarrassed when your debit card was declined at Staples, (though I suspect you'd withstand the humiliation to avoid a $39 fee). But those fees are a huge source of profit of banks' profit, about $38.5 billion annually, according to the FDIC, so the problem has gone unfixed.

Both Carolyn Maloney (in the House) and Christopher Dodd (in the Senate have proposed bills that would require consumers to opt-in to overdraft protection. (And the Fed is contemplating rules, meaning we'll see them maybe in the year 2057.) Most people would, of course, would not opt-in to a "protection" system that has them paying through the nose.

To counter any reforms. a few of the banks are pulling back. BofA, my kid's nemesis, will not charge its usual fee if an overdraft is no more than $10 in a single day, and it will charge no more than four fees per day. Wells, Chase, and Citi are adopting similar formulas. To all that I say, cut it out, you parasite banks! Nobody should have to take out a loan unless he has agreed to one -- and not at an extortionate interest rate over 100%.

Now you can easily arrange to cover any overdrafts -- for free -- by connecting your checking and savings accounts. Then if you take out too much, money will automatically be extracted from savings to cover the debit. Seriously, folks, that's all you have to do to protect yourself.

But, if it's too late because you already ran up overdraft fees, filmmaker Harney Katch has a solution: take the banks to to court--small claims court, that is. And you can watch how he succeeds in getting some $60 in O.D. fees wiped out in the video here.
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