Overdraft fees overtake late charges

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Nearly 51 million people this year paid overdraft fees, also a record. Those are charges customers get if there is not enough money in their accounts. But, rather than decline payment, the bank fronts the money and charges up to $35 for each transaction.

Tinya Sherrill found out that those fees add up fast. She had enough money in her checking account to cover a $16 blouse, a $20 cash withdrawal and certainly a $1 movie rental at the Red Box. At least, it started that way.

"Actually, it was a shock," she said. "I couldn't believe it at all."

The shock was eight overdraft charges on her Bank of America account at $35 each

"I don't have $35 to pay for every transaction," said Sherril.

Here is what happened. Tinya had transferred $400 into her account to cover her car payment, but the deposit did not clear right away. The bank put the car payment through anyway. That wiped out all the money in her account so there was not any money left to pay for each of the small purchases.

Sherrill was charged an overdraft fee for every single one of the purchases. That movie rental cost her $1.10 plus a $35 bank fee, making it the most expensive movie rental of her life.

"Man, I don't even remember the movie, but I know it wasn't worth $35," she said.

Consumer Action's Joe Ridout says charging $35 for a $1 purchase is like a loan with an astronomical interest rate.

"The bank loaned her $1.10 to go through with a transaction and charged her a $35 fee," he explained. "If she pays that back in a week, that's an effective APR of 150,000 percent."

Sherrill says putting the small prchases through first could have avoided multiple fees.

"It was unfair. It wasn't justice at all. Especially with the $1.10 charges, I was like my goodness this is crazy," she told 7 On Your Side. "I don't have that kind of money to just be giving a bank."

Sherrill contacted 7 On Your Side who contacted Bank of America. The company said the fees are intended as a deterrent to overdrawing on accounts. It puts the large transactions through first because they tend to be "high stakes items" like as mortgages or rent.

Still, the bank says it is changing policy this month limiting overdraft charges to four items per day instead of 10. And, it will not charge if customers overdraw by $10 or less per day.

At 7 On Your Side's request, the bank reviewed Tinya's situation and agreed to refund $290 in overdraft fees.

The bank said: "Although no bank error was identified, Bank of America extended a courtesy refund of all fees assessed related in this matter, given her long standing relationship with the bank."

And, that was fine with Sherrill.

"7 On Your Side did me justice. I feel good about it," she said.

There is legislation being drafted in Washington that would help curb overdraft fees. Banks say the new controls are not necessary because they are already adopting more consumer-friendly policies.

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