How to avoid debit-card overdraft fees ahead of Fed's new rules

Under new rules announced Thursday by the Federal Reserve, banks will no longer be allowed to automatically enroll their customers in expensive overdraft loan programs. Banks will be required to get their customers’ permission first before they can charge expensive fees when debit and ATM card transactions trigger an overdraft.
 
The rules don’t kick in for new cards until July 1 and for existing accounts, Aug. 15.  And, the rules don’t cover checks or recurring debit transactions—like those for utility, phone, or rent payments.
 
Most large banks automatically enroll their customers in overdraft programs, which are really high-cost loans that generate billions of dollars in excessive fees every year. Banks are expected to collect more than $38 billion in fees from overdrafts this year.
 
Debit card overdrafts could be prevented with a warning that there are not enough funds in the account, or by declining the transaction. Instead, most banks let these transactions go through and charge consumers a fee for each overdraft; the average fee is $35, according to Consumer Federation of America.  If you don’t pay back the overdraft within a few days—or sometimes a single day—you’ll be hit with additional overdraft charges.
 
Here’s an example: According to Consumer Federation of America, a Bank of America customer who overdraws on four transactions that total more than $10 would be charged $35 each for a total of $140. If the overdraft isn’t repaid in five days, the customer would get hit for another $35 sustained overdraft for each unpaid overdraft. Total: $280 in fees in under a week.
 
Until the new rules kick in there are a few things you can do:
 
• Link your checking account to a savings account and set up overdraft transfer protection. With this method, the cost for overdrawing the checking account is generally lower, say $10 each time.
• Opt out. Bank of America already allows customers to opt out of its overdraft program by calling 888-717-3999. Chase and Wells Fargo have announced that they will soon implement an opt-out provision, and like B of A are limiting when and how many overdrafts they charge.
• Budget better. Balance your check book and sign up for e-mail or text message alerts from your bank or from a personal finance Web site to tell you when you’re account has fallen to a certain level.  
• See the Consumer Federation of America's study of the major banks, so you can choose a bank that works for you. Don’t forget to check out your local bank, which might have more consumer-friendly terms.—Chris Fichera 

New on Top 10 Complaint list: Sleazy credit-card & lending practices

The National Association of Attorneys General recently released a list of the 10 complaints consumers filed most frequently with state AGs in 2008. It includes two gripes of particular interest:

•Greedy banks that coaxed people into mortgages they knew couldn’t be paid back are evicting folks from their homes (no. 6)

•Greedy banks are raising interest rates, cutting credit limits, tacking on new fees, and otherwise overcharging for credit and debit cards (no. 4, a tie).

I certainly wasn’t shocked that a lot of people voiced those complaints, especially given the dastardly role the banking industry played in the near-collapse of the U.S. economy. But I was surprised to learn that this is the first time predatory lending and unfair credit-card practices were among the top 10 complaints since NAAG began compiling its yearly list.

Maybe it took the Great Recession for people to stand up for their rights on those two critical issues. But in many financial disputes, consumers may not know their rights under the law. In the November issue of Consumer Reports Money Adviser we explain consumers' legal rights in 11 typical clashes with retailers and service providers.

Consumer protection laws vary from state to state. Here's contact information on your state’s AG office.–Jean Pietrobono

Want to save more? Ask for a text reminder.

The Wall Street Journal today reported on a study showing that individuals who were reminded by text messages to save increased their savings account balances by 6 percent. The researchers concluded that attentiveness plays a part in savings discipline. Consumers were particularly motivated by reminders of certain personal goals. Those who were offered particular incentives by their banks upped their savings by 16 percent, on average. Negative messages were no help at all.

If you'd like a regular nudge to urge you to save, you may be able to set up electronic reminders through an online personal finance service. Consumer Reports Money Adviser looked at a few online services recently. (Note: Intuit, which now owns Mint, is reported to be shutting down its original online personal finance service, Quicken Online, and moving customers to Mint.) 

You also can easily automate savings by arranging periodic transfers of funds from a checking account to an online savings account. Consumer Reports offers tips for ramping up your savings. And Consumer Reports Money Adviser judges several online banks.–Tobie Stanger

Give up my rights to save $10? No thank you!

Here's a new twist on how credit-card companies are attempting to get around the consumer-friendly Credit CARD Act, due to go into effect in February. 

Our sister Web site, The Consumerist, this week featured a reader's account of a telephone conversation with Capital One, in which the credit-card company offered to lower the fellow's overlimit fee to $29 per transaction from $39, if he chose not to be covered by one of the Credit CARD Act's consumer protections. (Click here for The Consumerist's update.)

The new law disallows overlimit fees, unless folks opt in for overdraft protection. But that $10 savings for opting in doesn't sound like much of an incentive, in our view.

If you have a story to report about a similar offer, or a unilateral decision, by your credit-card company, tell us about it at Consumers Union's Credit Card Reform.org. We'll be collecting consumers' anecdotes and commenting to the Federal Reserve to encourage more restrictions on credit-card company abuses.

And click here for Consumer Reports tips on taking control of your credit-card debt and avoiding credit-card company atrocities.–Tobie Stanger

Shafted by your credit-card company? Tell us your story by Nov. 20.

If you're mad as hell at your credit-card company, here's your chance to let federal regulators know--and maybe even get something done about it! 

Credit Card Reform.org, a project of Consumers Union, publisher of Consumer Reports, is collecting stories from consumers who feel they've been shafted by their credit-card company, particularly in the last few months. As we've reported, credit-card companies have been busy as bees jacking up interest rates, changing fixed rates to variable rates, increasing penalties, and doing other maneuvers to gain the most before the consumer-friendly Credit CARD Act of 2009 goes into effect next February. 

Consumers Union supports current efforts to push forward the effective date of the law to December 1 of this year. We're also providing information on the credit-card companies' obnoxious behavior to the Federal Reserve, which in theory regulates such practices. Lauren Bowne, a CU staff attorney coordinating the effort, hopes to highlight a range of abuses by having consumers "share their story with the Fed as a way to highlight the attempts by the card companies to circumvent the law," Bowne says. 

If your credit-card company has done any of the following (or something new we've not mentioned here), we want to hear about it:

•Added a new fee or raised an old fee.

•Increased your interest rate.

•Closed your account.

•Lowered your credit limit.

•Took away rewards.

•Raised the minimum payment.

•Made the fixed interest rate a variable rate.

Avoiding post-holiday debt: Don't be among the 13.5 million!

This holiday season, it may be more important than ever to avoid impulse buying that leaves you with a holiday debt hangover in the New Year. A survey we conducted in early October showed that six percent of adults, or roughly 13.5 million consumers, were still saddled with debt from last year’s holiday spending.  

Odds are you’ll be paying especially hefty finance charges this year if charging a lot of gifts leaves you carrying a balance on your cards. That’s because many banks are jacking up rates or imposing other finance charges in the form of annual fees before their ability to do so is crimped by federal credit card reform rules that become effective in February. For instance, Wells Fargo recently notified cardholders it plans to raise interest rates by 3 percentage points starting Nov. 30, while Citibank in late October hiked rates for many of its customers to 29.99 percent.

The good news is that many consumers already are making progress in slashing their card debt. A recent Consumer Reports survey found that more than a third of consumers polled said they had paid off and closed a card account this year.  And the Federal Reserve’s latest monthly Consumer Credit Report showed that revolving credit, which is largely card debt, decreased at an annual rate of 13 percent in August, to a total of  $897.6 billion. That’s down from $988.2 billion at the end of 2008.

Tightwad Tod offers some helpful tips on how to avoid holiday debt headaches here.-Andrea Rock

'Unfair and deceptive' practices among 100% of top banks' credit cards

Anticipating the February trigger of the Credit CARD Act's final phase, banks have dramatically raised interest rates, imposed new fees, jacked up old fees, and changed terms, a new report by the Pew Charitable Trusts says. In fact, 100 percent of cards issued by the nation's 12 largest banks used practices that would be considered "unfair and deceptive" under the new law, the report says. 

The report, which follows up on a similar study done in the spring, shows rampant anti-consumer activity:

•Nearly all (99.7 percent) of bank cards allowed the issuer to raise interest rates on outstanding balances by changing the account agreement unilaterally. That's up from 93 percent last December.

•95 percent of cards allowed issuers to apply payments in a manner that the Federal Reserve found "likely to cause substantial monetary injury to consumers." (The other 5 percent weren't necessarily good guys; they just didn't disclose their policies.)

•The median late fee remained unchanged, at $39. Eighty percent of bank cards also charged a $39 overlimit fee. The median penalty rate was $28.99 percent; 90 percent of banks allowed that rate to continue even after the consumer resumed on-time payments. 

•Credit unions, another option for consumers, offered interest rates between 9.9 and 13.75 percent, about 20 percent lower than comparable bank rates. And their penalties were generally less severe than those of banks. Most credit unions levied late and overlimit fees of $20. 

The report recommends consumers consider obtaining cards from credit unions, though they represent only 1 percent of the credit-card market. Consumer Reports does the same; read more of our tips on finding good credit cards. And here's some sage advice from Consumer Reports Money Adviser on the right way to pay off your credit-card debt.

Some members of Congress have introduced legislation to rein in credit-card issuers now. Click here to tell your Congressperson to speed up the Credit CARD Act's effective date to Dec. 1, 2009. And feel free to comment below on what you've experienced.  As comments on our previous credit-card blogs show, consumers are outraged with the banks' ugly last hurrah.–Tobie Stanger

Phishing crime's up nearly 600%. Don't get hooked!

Criminal "phishing" attacks have risen by nearly 600 percent this year, according to a report from the Anti-Phishing Working Group, an association of financial institutions, online retailers, law enforcement, security and research groups that have combined forces to fight Internet crime.

Phishing is typically carried out by e-mail, instant messaging or text messages that appear to be from banks, online retailers or auction sites. Phishers are using increasingly sophisticated techniques to trick people into divulging information, usually by directing them to a fake website that appears nearly identical to the legitimate site. 

Earlier this month, for instance, the FBI announced it had arrested 100 members of an international criminal ring that used e-mails to direct banking customers to phony bank Web sites, where they were asked to provide account log-ins, passwords and other information the crooks then used to raid their bank accounts.  Victims included thousands of customers at U.S. banks, including Wells Fargo and Bank of America, according to the industry trade publication Bank Information Security.

Who would be naïve enough to be tempted by phishers’ bait?  For starters, how about the highly-security-conscious head of the law enforcement agency that just made that 100-cybercriminal bust (which is now being referred to as the “phish fry”)?  In a San Francisco speech announcing the arrests, FBI Director Robert Mueller said that he’d recently received an e-mail purporting to be from his bank asking him to verify some information about his account.  It looked so legitimate that he started to respond, and was only a few clicks away from being hooked when he suddenly realized this was a classic phishing scam.

Support Dec. 1 trigger for consumer-friendly Credit CARD Act!

If you'd like to stop the credit-card industry in its tracks, head to Consumers Union's advocacy Web site, CreditCardReform.org. There, you'll find a suggested e-mail text to send to your Representative, encouraging passage of H.R. 3639, an accelerated trigger date for the Credit CARD Act of 2009, as well a support for a Consumer Financial Protection Agency, with wide-ranging benefits for financial-product consumers. 

The Maloney-Frank bill expedites the trigger date for the Credit CARD Act to December 1 of this year, ahead of the original date of Feb. 22, 2010. The bill, sponsored by Reps. Carolyn Maloney, D-NY, and Barney Frank, D-Ma., is a response to consumers' gripes that credit card companies are hiking interest rates, adding fees, and raising minimum payments to avoid the Credit CARD Act's more consumer-friendly rules.

In a similar move, Senator Christopher Dodd, D-Conn., yesterday proposed freezing interest rates on existing card-balances. 

What do you think of these proposals? Have you told your Representative how you feel? 

Latest phishing scam: Mobile text message from bank

Paul Eng, our electronics blogger, recently discovered a new phishing phenomenon: a mobile text message posing as a legitimate communication from his bank. He was sharp enough to know something was phishy, and avoided the potential scam. 

The incident underscores the need for vigilance in all your communications, particularly with merchants, financial institutions, and government agencies. As the holiday shopping season rolls around, it's a good time to review these cautions to prevent identity and data theft, outlined by the Federal Trade Commission.