According to a recent survey conducted by the American Bankers Association, 61 percent of Americans do not pay monthly fees for their checking accounts, automated teller machines (ATMs) or other conveniences.

On the other hand, a recent report from SNL Financial revealed that three of the six largest banks in America collectively generate more than $1 billion from service charges and overdraft fees.

An overdraft fee is a charge banks make when money is moved into the consumer’s checking account, in order to pay for an expense. Overdraft fees are often treated as loans from banks and credit unions, but can become detrimental to a consumer’s finances.

These banks — which include JP Morgan Chase & Co., Bank of America Corp. and Wells Fargo — reportedly pocket more than $350 million in overdraft fees on a three-month basis.

While credit unions have been marketed as a friendly, economic solutions to intimidating big banks, consumers have recently complained that credit unions have become just as bad as banks when it comes to fees. Credit unions under fire for overdraft fees include:

• Navy Federal Credit Union, Vienna, VA
• State Employees Credit Union, Raleigh, NC
• Pentagon Federal Credit Union, Alexandria, VA
• Boeing Employees Credit Union, Tukwila, WA
• Schools First Federal Credit Union, Santa Ana, CA

Despite these astronomical numbers, experts state that federal law now requires that banks and other financial institutions with more than $1 billion in assets to disclose overdraft fees and other charges instead of categorizing them with other income.

According to the SNL report, banks who are required to follow this policy have taken more than $2.5 billion from bounced checks in the year’s first quarter and about $438 million in ATM fees. Monthly-account maintenance fees have generated an additional $974 million in profits.

Overview of Credit Union Overdraft Fee Allegations

Experts state that consumers with big accounts are probably not paying any overdraft fees, but lower-income customers living on paychecks often find themselves paying for these fees because they often need to overcharge their accounts. Financial authorities state that this practice is despicable, as these fees targets the consumers who most likely cannot afford them and feel the greatest impact when incurred.

Bank and credit unions overdraft fee practices have resulted in great burden for consumers, forcing the federal government to step in to aid consumers. The government recently required banks and credit unions to disclose fees and charges associated with overdraft policies and also required these financial institutions to get consumers’ consent before signing them up for overdraft protection plans.

On Aug. 15, 2010, the Consumer Financial Protection Bureau prohibited banks and credit unions from charging overdraft fees to their customers unless the customer had opted for overdraft protection. While overdraft fees are not inherently evil, they have become an unfortunate source of annoyance for consumers.

However, this regulation only applies to one-time-only debit card transactions. Additionally, experts warn that if consumers use their debit cards, or even paper checks, for rent and other living expenses, banks can charge fees regardless of whether or not the consumer signed up for the protection.

Other tactics financial institutions have been found to use allegedly include putting transactions out of chronological order and organizing them from largest to smallest purchases. This practice potentially triggers multiple overdraft fees once the account is empty. Furthermore, experts state that even with federal regulations, banks and financial experts seldom disclose all fees associated the financial institution could charge to consumers.

How to Protect Against Overdraft Fees

Luckily, there are a number of precautions and features available for consumers to use to prevent being charged. After opting out of overdraft fee protection, experts advise consumers to keep some spare cash on them, in the case their account runs out.

Consumer are also advised to sign up for alerts, allowing the bank or credit unions to send texts or email alerting the consumers that their account has dropped below a certain level. When shopping, look for the best deals as it is always wise to be cost savvy, so to better budget monthly expenses.

Finally, experts advise consumers to not be shy about asking banks to wave an unexpected fee, and to also ask questions about the overdraft fees.

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