Studies say bank customers still confused by debit-card overdraft policies

Two new studies suggest that checking-account customers continue to be confused by banks' debit-card overdraft policies, despite Federal Reserve rules imposed last summer to protect card users from unexpected charges for overdrafts on point-of-sale transactions.

The new rules bar banks from imposing fees on such overdrafts unless an account-holder agrees in advance to the banks' terms. With typical fees of $35 per overdraft, banks have made billions of dollars a year by authorizing debit-card purchases even though there are insufficient funds in customers' accounts.

In a report released Tuesday, the Center for Responsible Lending said that many banks "use scare tactics and other misleading practices to persuade consumers to opt into high-cost overdraft programs for debit card purchases."

The center, a North Carolina research and policy organization, said a random survey of about 1,000 checking-account customers reflected widespread confusion over the new rules.

For instance, 60 percent of survey respondents who opted into overdraft coverage said an important reason for doing so was to avoid fees if their card is declined, the study said. Under the rules, if a customer does not opt in, a bank cannot charge a fee for declining a debit-card purchase or for authorizing a transaction despite insufficient funds.

"For almost half of those who opted in, simply stopping the bank from bombarding them with opt-in messages by mail, phone, e-mail, in person, and online banking was a factor in their decision," the center's report said.

In a separate study to be made public Wednesday, the Pew Health Group called for standardizing banks' disclosures of a broad range of checking-account terms, and said overdraft costs continued to be a particular point of confusion.

Pew, which examined about 250 checking-account products offered by the nation's 10 largest banks, said accounts had a median of 111 pages of disclosure documents, with information on key terms and conditions widely dispersed.

Pew said most of the banks offered lower-cost options for covering debit-card overdrafts by linking checking accounts to other accounts, such as a line of credit. But banks are not required to present such options alongside their standard overdraft programs, or to disclose the benefits of not opting in, which Pew said was "a choice that would allow customers to avoid exceeding their available balance or incurring any overdraft fees."

Carol Kaplan, of the American Bankers Association, said she had not seen the Pew study, but she was critical of the methodology used by the Center for Responsible Lending, which asked respondents to rate the importance of various factors in their decision to opt in to overdraft coverage - including some that would reflect misunderstanding of the rules.

"This is a flawed survey at best," Kaplan said.

Joshua Frank, senior researcher in charge of the study, defended the approach.

"It's always a difficult thing in surveys to try to get at consumers' misperceptions," Frank said. "Our study shows that there's definitely more work to be done, because lots of people are opting in for the wrong reasons."