Americans pay billions in bank fees, but YOU can be the exception

Think fees are no big deal?

If U.S. consumers got back all of the money they paid in overdraft fees in just one year, they could pay last year’s bonuses at Goldman Sachs, buy the Wrigley chewing gum company, or match all the money made with Internet advertising for a year.

That’s because consumers paid $23.7 billion in overdraft fees alone in 2008, according to the Center for Responsible Lending. And that was up more than a third from two years earlier.

Rather keep the wealth in your own pocket? Here’s your quick checklist:

1. Use balance notification features. Some credit and debit cards will send you an e-mail or text when your balance hits a certain point.

These can be great tools, and they’re free, says Linda Sherry, director of national priorities for Consumer Action, a San Francisco-based advocacy group.

Depending on the features, you can set it up so that your bank or card issuer notifies you of your balance at regular intervals or when your balance hits a specific amount.

2. Learn the new consumer rules. New consumer protections can put money in your pocket,  says Susan Weinstock, director of financial reform campaign for Consumer Federation of America.

One great example: In the bad old days, if you were late with a payment and that card issuer raised your rate, that was it. Permanently. Now, under the Credit CARD Act of 2009, if you make six months of on-time payments, the bank has to restore your old rate.

3. Don’t authorize overdraft protection. As of July 2010, the default setting for overdraft protection on your debit card is “no.” Under new overdraft opt-in rules issued by the Federal Reserve, card transactions won’t be approved unless there is enough money in your checking account or available credit to cover the purchase.

What this means to consumers: no more spending $4 for coffee and getting hit with a $35 overdraft protection fee because you miscalculated your balance. Unless you “opt in” to your bank’s overdraft protection policy, your card will simply be declined.

If you’ve paid the fees recently, you’re not alone. Thirty-one percent of consumers have overdrawn their checking accounts in the past year, according to a February 2010 survey by the Consumer Federation of America. Fees range from $19 to $39 and average around $31, according to another federation report.

4. Set up your own overdraft protection. Banks will allow you to link your checking account to a savings account or a line of credit. When your balance hits $0, the bank will take from savings or the line of credit. What you pay: a transfer fee that is often much lower than overdraft charges, says Sherry.

5. Say the magic word: “free.” The opposite of “fee” is free. And that’s the word you want to hear when you ask about bank and credit card services.

Look for checking and savings accounts that don’t charge monthly fees to start with, says Sherry. “You’ll be ahead of the game.”

Ditto credit cards that are now charging annual fees. “There are plenty of  credit cards that give rewards and don’t charge an annual fee,” says Lauren Bowne, staff attorney with Consumers Union.

6. Carry a written log. The big plus of check and credit cards? Swipe it and you’re gone. The big minus? You have to gather up all those crunchy receipts to reconstruct your balance and avoid overdraft or over-limit fees.

Some consumers wrap the card in a piece of paper as a reminder to jot down what they spend each time they use it, says Sherry. Others put the card inside an envelope that they can use to write totals or store receipts to keep track of available balances.

7. Track that wily APR. Do you know the annual percentage rates (APRs) on your various cards? If you pay balances in full every month, it won’t matter. But if you’re carrying a balance on any card, you need to know your APR.

One way banks can charge you more for the same service: Raise those rates. The disclosure notifying you of the change — and starting the clock for your rights to reject the increase — can be easy to miss.

“Read, read, read the stuff that comes in the mail from your credit card company,” says Weinstock. “I know it’s hard to read that stuff, but it’s important.”

8. Refuse a rate increase. It takes two parties to raise your card’s rate: the card issuer and you. If you don’t agree, it doesn’t happen. So, if you don’t want to use the card and want to pay off the balance under the old APR, the Credit CARD Act gives you the right to opt out of the rate increase.

To increase your rates, the card issuer must give you instructions on how to opt out. Follow them precisely. You’ll likely have to give up use of the card and close the account, but at least you’ll be able to pay off any balance under the old terms.

The down side: Closing an account could lower your credit score unless you replace it with an equal amount of credit from another source.

9. Pay early. The CARD Act prevents companies from charging fees for paying online or by phone. The exception: If you use a live attendant (read “human”), rather than their automated or online systems, or require some type of expedited payment service, she says. To avoid fees, pop that payment in the mail and allow at least seven days for it to be credited to your account.

10. Match your bank to your needs. Choose the cheapest bank for you, not just the cheapest bank. That means matching the services you use most often to the bank that will give you the best rate on those services.

So if you’re an ATM junkie, “you set yourself up for a lot of fees if you bank with a small credit union” or institution that doesn’t have a network of free ATMs, says Sherry.

And if you travel, look for an institution that will have a convenient network of banks and machines in the places you visit regularly.

11. Compare gift cards. The CARD Act did not knock out inactivity fees on gift cards, says Michelle Jun, staff attorney with Consumers Union. But some cards eliminated them anyway, while others will charge a host of fees for things such as checking your balance.

The trick: Cards often have a toll-free number on the back of the package. Ask about monthly or inactivity fees, then find out which services are included and which cost extra.

12. Talk fees with your card issuer. Looking at a balance transfer credit card to take advantage of a lower rate? Ask about balance transfer fees, says Weinstock. While many consumers eye the lower rates such cards often offer, they forget the fees, which are usually 3 percent to 5 percent of the amount transferred. “You have to be careful; there are a lot of tricks and traps here,” she says.

13. Question everything. See a fee you don’t recognize? Pick up the phone. Even if it’s legitimately yours, if it’s new or you’ve never encountered it before, ask the rep to waive it.

Bowne goes through her statement regularly online. But one day she saw a bank charge for $12. A little research revealed the bank had been levying the charge for the past three months. She called and found out it was an account maintenance fee. The only problem: She has free checking. The bank reversed it, blaming a computer glitch. Bowne continues to get charged and has to call every month and get the fee reversed.

The lesson: Watch out for fees, she says. “And don’t hesitate to challenge them.”

Article written By Dana Dratch

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