October 2009 Archives

In September, I was on a long road trip. I was also pretty low on funds, but as evening came in Virginia, I was getting drowsy. No way I'd make it to Connecticut that night. I made some quick calculations and decided I could just afford a cheap motel room. I pulled off the highway.

What happened in the following days will be familiar to many readers. I paid for my room with my debit card. When I returned home, despite the fact that the room was paid for and I had a balance in my account, I found that my account had been charged insufficient funds fees for a bunch of subsequent transactions and a couple of checks.

When I called my credit union, I was told that the motel had put a hold on my account -- in an amount larger than the charge for the room -- that would not be lifted for 10 days.

What amazed me even more: The motel wasn't the only merchant that had reached into my account in this way. There were several holds on the account from gas stations, and even from a supermarket where I'd bought some food along the way. The result: $175 in fees. Ouch.

Sen. Chris Dodd, D-Conn., has written legislation that would stop these fees from being assessed if they're associated with holds on accounts.

Thank you, senator. But after I discovered that any merchant could put a hold on my bank account (a Kroger store, for crying out loud), I started to wonder: Who sets the rules for this practice?

Guess what? No government agency controls it. There are no laws governing it.

When you hand over your debit card to any merchant, they can reach into your bank account and freeze your funds. How much? For how long? However much they like. As long as they like.

Who decides? The card networks. That means the folks at Visa and MasterCard.

It's kind of understandable, perhaps, that car rental companies and hotels might put very short-term holds on credit cards and debit card holders' bank accounts to protect themselves in case someone overstays their reservation or drives farther than they predicted. But for 10 days after they've already been paid? For twice the amount of the bill?

I talked to people on Dodd's Senate banking committee staff, and they directed me to the Federal Reserve.

The Federal Reserve did not want to talk about it. The best answer I could get, from an aide on the banking committee, was that there is no government regulation of this practice.

Are you listening? Any merchant can reach into your bank account and deny you access to your own money, and no government agency can stop them.

Banks don't necessarily have to go along with this. But then again the banks, faced with lean times, are finding a great way to make those lean times pay for them: insufficient funds fees they can charge when there's a hold on your account.

Once again, poor people -- or just-getting-by people -- are keeping the banks afloat. Perhaps we should feel grateful that we're playing such a crucial role in this wonky economy.

One young woman I know, who can ill afford it, told me her family had lost more than $1,000 this way over the past year. She has to travel for her job. She has to rent cars and stay in hotels.

And now that I find that even grocery stores can do this, where are the limits?

It's the Wild West out there, folks. You thought that money in your bank account belonged to you? Not so fast.

Essentially, unsuspecting account holders are being coerced into making millions of no-interest loans every day: Your money is not available to you, though it is still available to the bank and to the merchant.

If Dodd's legislation succeeds, at least the banks will be stopped from charging those nasty fees when the hold on your account sends it into the red. But the bigger question remains: Why do merchants have the power to do as they please with your account? Why is this activity totally unregulated?

The banking committee aide I spoke to promised me that Dodd would be looking into this.

Banks this year have dramatically increased the fees they charge noncustomers to use their automated teller machines, according to figures compiled by the research company Bankrate.com.

The average ATM surcharge charged by banks and thrifts is now $2.22, up 12.6% from $1.97 last year, said Greg McBride, a senior financial analyst with the North Palm Beach, Fla., company.

Bankrate.com surveyed 250 banks and thrifts nationwide in August and released the results last week.

Many banking companies raised their rates this year because consumers are making an effort to use ATMs operated by their banks and avoid paying the fees, McBride said. This prompted the higher fees, as banks needed to offset the lower surcharge revenue, to cover the fixed costs of maintaining their ATM networks, he said.

"Surcharge fees are higher, but they are avoidable" for consumers, McBride said.

While fees for noncustomers were up, the average fee banks charge their customers who use other financial companies' ATM fell, the survey found. Foreign fees, as they are called, averaged $1.32, compared with $1.46 last year. Bankrate.com said banks likely cut these fees as part of their customer-retention efforts.

Last month, some major banks announced minor changes in their overdraft policies. They were hoping to head off new federal regulation of a business that is designed to ambush ordinary people and siphon off as much money as possible. We were unimpressed with those steps at the time, and a recent study by a nonpartisan research group confirms that the banks have grown addicted to the easy billions they reap from these policies.

They clearly will not renounce them unless the government forces them to do so.

In the new report, the Center for Responsible Lending estimates that banks and credit unions raked in nearly $24 billion in overdraft income in 2008, a jump of 35 percent from two years earlier. The author, Leslie Parrish, suggests that the take will be even bigger this year.

The banks have managed this feat by driving up overdraft charges to an average of $34 per incident, removing caps on the number of charges that may be incurred in one day and charging additional fees to accounts that remain overdrawn for several days. In general, cardholders are not notified that they have been charged $34 each for purchases as innocuous as a cup of coffee, a bottle of aspirin or a magazine until it is too late.

When asked in a national telephone survey, about 8 in 10 people said that they would rather the bank deny the transaction than charge them a fee. But banks typically do not inform people at the point of purchase that they are about to be overdrawn.

The banks typically enroll customers in these euphemistically named "overdraft protection" programs without their knowledge and often make it difficult for them to escape. American families now spend more on overdraft fees every year than on books, breakfast cereal or fresh vegetables and only slightly less than they spend on major appliances.

The charges are especially onerous for students, who practically live on debit cards, and for Social Security recipients, who can unknowingly eat up their meager incomes buying food, medication and other essentials.

Federal regulators, who have failed the country in so many other ways, have yet to rein in these practices. So it is up to Congress, which should pass a bill introduced by Representative Carolyn Maloney, a Democrat of New York, that would require people to opt into these programs. Banks would also have to warn the customer of the pending overdraft and give them the option of canceling the transaction. Beyond that, Congress should create the strong consumer protection agency that was proposed by the Obama administration, which would prohibit not just the overdraft abuses but other scams that will surely arise in the future.

If you are thinking about getting a prepaid debit card, the first question to ask is whether you will be better off opening a bank account instead.

Traditional bank accounts are usually cheaper than reloadable cards and offer the chance to work toward acquiring credit cards, auto loans and mortgages. But they can be expensive for those who keep a low balance and are routinely charged overdraft fees, which can be as high as $39 for each occurrence.

For the tens of millions of Americans who do not trust banks or are ineligible for a bank account, prepaid debit cards can provide a convenient and even affordable alternative. But it is important to carefully read the schedule of fees. Many cards bury dozens of fees in complicated fine print, including fees for A.T.M. withdrawals, purchases, calling customer service and exceeding the amount of cash loaded onto the card.

It is also important to determine how you will use the card. Many cards offer discounts if paychecks are directly loaded onto the card. But fees can pile up when the card is regularly used for A.T.M. withdrawals. And if a card is not used often enough, inactivity fees may be charged.

As the industry expands, some prepaid cards are becoming more affordable. Wal-Mart recently cut prices on its MoneyCard, which now costs $3 to buy, $3 to reload and $3 a month for maintenance.

Several large issuers have followed suit. Green Dot, one of the biggest issuers, dropped the purchase price for its card to $4.95, from $9.95, and eliminated monthly fees when the card was used at least 30 times a month, or with a deposit of at least $1,000.

Industry officials predict the more expensive cards will fold as the business gets more competitive.

"The fact is you have some programs out there charging fees that are too high," said Steve Streit, the founder of Green Dot.

Buying a prepaid debit card these days is just about as easy as picking up a bottle of shampoo or a candy bar. Walk into a Wal-Mart or almost any major drugstore, and rows of plastic worth $25, $100 and even $500 beckon from kiosks alongside prepaid phone cards and gift cards for retailers.

No Credit Check. Safer Than Cash. No Bank Account Needed," says the Green Dot Visa Prepaid Card: Just pay at the register and the card is ready for A.T.M. withdrawals, store purchases and online shopping.

For many people who do not have bank accounts, or cannot get a credit card, the appeal is irresistible, making the reloadable cards among the consumer banking industry's fastest-growing products. But their convenience comes with a catch: fees, often hidden in the fine print.

The MiCash Prepaid MasterCard docks cardholders a $9.95 activation fee. Like many competitors, it then charges numerous recurring fees, including $1.75 for each A.T.M. withdrawal, $1 for each A.T.M. balance inquiry, 50 cents for each purchase, $4 for monthly maintenance, $2 for inactivity after 60 days and $1 for a call to customer service.

The Millennium Advantage Prepaid MasterCard goes further, listing an application fee of up to $99. The Silver Prepaid MasterCard advertises that it does not charge for overdrafts as many debit cards do, but it gives itself the option of charging a $25 shortage fee if customers exceed their balance.

"It's a very expensive way to bank," said Jean Ann Fox, director of financial services at the Consumer Federation of America.

A cottage industry only 10 years ago, reloadable prepaid cards have tapped into the vast pool of about 80 million consumers who have little or no access to bank accounts. The market includes college students who do not want to carry around wads of cash and consumers who do not want to type their credit card number into the Internet.

More typically, it comprises low-income people and immigrants who have fewer financial options than other Americans. Often, they turn to these cards because they cannot open a bank account, or they become fed up with the costs of check-cashing stores or overdraft fees on checking accounts.

Industry officials say the cards are a good deal because users can avoid the fees charged on low-balance bank accounts and at check-cashing stores.

"If you look at these products today compared to even a checking account, many consumers have found that they can be far less expensive," said Gary Palmer, chairman of the Network Branded Prepaid Card Association.

But even as the industry expands, many prepaid cards continue to charge fees -- including for purchases and paying bills -- that can quickly accumulate.

Like many workers, Tyrell Blocker, 20, of Brooklyn, could ill afford the surprise when he took such a card last week to a Pay-O-Matic Financial Services store in Manhattan after a bank turned him down for an account because he lacked one of two required pieces of identification. As soon as the cash from his paycheck landed on his card, he noticed fees accumulating. Mr. Blocker returned to Pay-O-Matic to complain and only then was provided a detailed list of more than two dozen fees, he said.

"I need every last dime I got; I've got a newborn," Mr. Blocker said. A spokesman for Pay-O-Matic said the card was fairly new and the firm was working to make the fees more transparent.

Little Regulatory Scrutiny

Because it is a relatively new industry, prepaid cards have not undergone the Congressional and regulatory scrutiny of credit and debit cards. In the spring, lawmakers restricted interest rate increases and hidden fees on credit cards, and regulators are now examining stricter rules on overdraft fees on checking accounts. Even gift cards, which expire when the money runs out, will soon be subject to new rules limiting monthly fees and expiration dates.

Congress has asked regulators to determine if prepaid cards warrant the same protections extended to debit and credit cards. The industry's trade association says such measures are unnecessary and would make cards more expensive.

But consumer advocates say the lack of regulation means that prepaid card users can continue to be blindsided by hidden fees, and have few legal protections to recover their money if a card is lost or a charge disputed.

Mike Henry, who owns a small print shop in California, had not been able to recover $50 stuck on his Only 1 Visa prepaid card after it stopped working. He gave up after numerous calls to customer service -- at 95 cents each -- went unresolved. Only 1, meanwhile, continued to send daily updates of his balance as it was eaten away by monthly fees. His account was finally whittled to zero.

"For the last six months, I turn on my computer and check my e-mail and get slapped in the face," he said.

Only 1 officials said they regretted his inconvenience and were refunding Mr. Henry's money.

Among the beneficiaries of these cards are Visa, MasterCard and Discover, which receive about a nickel to 20 cents each time a credit or debit card emblazoned with their logo is swiped. While the companies do not disclose income from prepaid cards, their efforts to add tens of millions of users represents a potentially significant source of new revenue.

Financial firms that issue the cards are often little-known companies with names like Green Dot, NetSpend and AccountNow. Since they get money upfront from the consumer, there is relatively little risk with prepaid debit cards, compared with credit cards and other loan-making products.

Given the number of people who have little or no relationship with a bank, both in the United States and abroad, the financial industry is betting on a boom. In 2008, for instance, customers loaded about $8.7 billion onto prepaid cards, a 125 percent increase over the previous year, according to the Mercator Advisory Group. The industry is expected to balloon to $119 billion by 2012, Mercator predicts.

"Every year we've seen big growth," said Steve Streit, the founder of Green Dot, now one of the largest reloadable prepaid card companies. "There's a part of me that believes we are just at the entry ramp to growth right now."

The cards are part of a larger universe of plastic that includes prepaid phone cards and gift cards, payroll cards and government benefit cards. Industry officials are particularly excited about the explosive growth from government agencies and companies as they replace paper checks with prepaid cards to save money. Social Security payments are now offered on prepaid cards to retirees without bank accounts, and many states do the same with welfare payments. Wal-Mart recently said it would pay employees only on prepaid cards if they did not have a bank account for direct deposit.

These fees tend to be lower than those on commercial prepaid cards. But critics question why there are any fees at all, particularly when the recipients do not have a choice.

"To me, it's a terrible thing to give people their pay on a card that has fees on it," said Linda Sherry, director of national priorities for Consumer Action.

Reloadable prepaid cards hardly existed a decade ago. Then, as credit cards surged and the Internet bubble lifted the economy, a handful of companies noticed an untapped market in teenagers who wanted to shop on the Internet, but were not eligible for credit cards. But it soon became clear that the larger market for prepaid cards was people who do not use banks and the uncreditworthy.

In the years since, dozens of companies and banks have latched on, some offering celebrity branding to lure customers. Johnny Cash, Usher, Carmen Electra and the football player Vince Young have all had their name attached to a prepaid card, and the hip-hop impresario Russell Simmons continues to back the RushCard, mainly to African-Americans, as a "better alternative" than banks and credit cards.

But these efforts are not without controversy. Mr. Simmons, for example, has batted down repeated criticism that his card saps money from low-income users. His Pay-as-You-Go card has come under scrutiny for charging a $19.99 activation fee deducted from the cash first loaded onto the card; a $1 convenience fee for the first 10 purchases every month; and a fee of $1 for every bill paid with the card.

Fees Are Declining

Industry officials say fees have been declining, especially after Wal-Mart this year trimmed fees on the MoneyCard Prepaid card it sells, which prompted several other issuers to cut prices too. They add that consumer complaints are rare and that surveys indicate the vast majority of customers like the cards.

An industry-sponsored study by Bretton Woods, a bank advisory firm, said that cards like Green Dot, Wal-Mart and NetSpend are cheaper than a checking account, whose annual cost can be as high as $353, assuming six overdraft charges, compared with $207 for a direct-deposit prepaid card.

Yet in many instances, even the lowest-fee prepaid cards can cost more if consumers are able to avoid bank overdraft fees. That should get easier after several large banks announced recently they would let customers decline overdraft protection.

While most major banks charge $10 or less a month for a low-balance checking account, a survey of two dozen prepaid cards released in August by the Consumers Union, the publisher of Consumer Reports, found that the cheapest, the Wal-Mart Money Card, cost $16.59 in the first month and $21.54 in the second.

By contrast, the most expensive card, the Millennium Advantage card, cost $115.05 in the first month, because of a $99 application fee, and $27.95 the second month, the survey, compiled by Michelle Jun, a lawyer for Consumers Union, showed.

And the actual fees charged can be confusing. A spokesman for the Millennium Advantage card said that while it lists the $99 fee, the company charges only up to $30. A spokesman for the Silver card said that it does not actually charge the $25 shortage fee shown in its fine print, and is working to remove it from company documents.

"How are consumers supposed to keep the fees straight if the companies can't?" said Michael McCauley, a spokesman for Consumers Union.

In the meantime, bewildered by opaque terms and often dodgy customer service, many consumers are fending for themselves.

Damon Saxton, 34, said he had given up on prepaid cards and hoped to return to a bank, if they will have him. Mr. Saxton began using a prepaid card after being barred from getting a bank account for cashing a check from an eBay sale without realizing it was fake.

But Mr. Saxton, who lives in Florida, said that the two years he used his Vision Premier Prepaid Visa Card were marred by petty fees and horrible customer service.

Mr. Saxton said that when he punched the wrong code into an A.T.M., the bank charged him $2.95 for a declined A.T.M. transaction. When he called to complain, he said, they charged him an additional $1.95. When someone got hold of his card number and racked up several hundred dollars in shortage fees, Vision Premier covered the fees with Mr. Saxton's tax return, which was directly deposited onto the card, he said.

A spokesman for the Vision Premier said Mr. Saxton's experience was not the norm. The company eventually refunded the fees.

"I wasted countless hours dealing with this problem, not to mention the stress," Mr. Saxton said. "I think the whole business is based around nickel and diming."

DURHAM, N.C., Oct. 6 /PRNewswire-USNewswire/ -- Banks and credit unions collected nearly $24 billion in overdraft fees last year, an increase of 35 percent from just two years earlier, a new study by the Center for Responsible Lending shows. [See the full report at http://www.responsiblelending.org/overdraft-loans/research-analysis/crl-overdraft-explosion.pdf.]

The explosion in overdraft charges has drained the wallet of as many as 51 million Americans whose accounts become overdrawn annually. It is particularly harmful to financially vulnerable families already hit hard by the recession.

"Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables," said CRL senior researcher Leslie Parrish. "These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy."

The most common trigger of overdraft fees are small debit card transactions that could easily be denied for no fee. This is how things used to work, and according to a 2008 nationally representative survey, it's what the large majority of people prefer.

Thousands of bank and credit union customers have complained to federal regulators that overdraft policies are unfair. Customers typically haven't explicitly agreed to these high-cost overdraft loan programs but are automatically enrolled by their bank. When consumers try to avoid these abusive fees, they often find themselves tripped up when, for example, institutions needlessly delay posting deposits or process purchases from largest to smallest to purposely generate multiple overdrafts. And because overdrawing an account by just a few dollars triggers a fee averaging $34, cash-strapped households--particularly younger adults and seniors on fixed-incomes--often are thrust even further into debt by this overdraft "protection."

The changes to their overdraft programs several banks announced last month do not address some of the most abusive features of the programs and can easily be reversed once the spotlight shifts. Reform of overdraft practices should be set into law--and soon. Policymakers should:

·                                 Require that institutions deny debit card purchases and ATM withdrawals, without charge, if the funds aren't there. As a limited exception, an overdraft fee could be charged if the lender gives the customer a real-time warning and chance to decline.

·                                 Require that overdraft fees bear some relationship to a lender's cost of covering a shortfall.

·                                 Limit the number of fees that can be charged to a customer during a year before the institution must enroll the customer in a reasonably priced overdraft product, such as a line of credit, if it wants to keep charging for overdrafts.

·                                 Consolidate and streamline existing federal consumer protection authority by housing it in one organization: the proposed Consumer Financial Protection Agency, which would focus solely on what's in the best interest of consumers.

CHARLESTON, W.Va. -- When Mike Hoover visited an ATM earlier this month to get his unemployment benefits with his state-issued Chase Visa debit card, he had $88.53 in his account. But after he withdrew $80, his balance was $5.78.

The machine had charged him $2.75 -- even though he'd used a Chase ATM.

It's not Hoover's only complaint about Workforce West Virginia's debit card program. At some banks, he can withdraw only $40 at a time, even though he's eligible for $140 a week in benefits. He's never received a monthly statement from either Chase or Workforce West Virginia, he said.

"This is not a user-friendly program by any means," said Hoover, a 54-year-old Air Force veteran who was laid off from the Kanawha County assessor's office earlier this year.

Hoover is one of 37,500 West Virginians using the debit cards, which Workforce West Virginia has given to everyone who's filed for unemployment benefits since late March.

The program doesn't cost the state a cent. Instead, JPMorgan Chase makes its money off fees charged to jobless West Virginians like Hoover. 

State officials say the program is saving them $340,500 a year by cutting back on postage and printing, and eliminating the time it takes to replace lost checks. But now, complaints about the cards and a recent technical glitch have prompted Workforce West Virginia to offer alternatives.

Under JPMorgan Chase's contract with the state, the company can't charge West Virginia unemployment-card customers when they use Chase, WesBanco or Allpoint ATMs.

But when the bank recently upgraded the computers that control its ATMs, a technical error hit people with a $2.75 transaction fee, Chase spokeswoman Nancy Norris said.

"It is fixed," Norris said Friday. "We have since refunded all the fees that we incorrectly charged."

After the Sunday Gazette-Mail asked Workforce West Virginia about the program last week, acting executive director Russell Fry released a statement saying anyone who doesn't like the debit cards can choose to get their unemployment benefits by check.

That option is available until the state can offer the benefits through direct deposit, which Workforce West Virginia is in the "final stages" of developing, said spokeswoman Jama Jarrett.

"We don't want to cause any undue stress," Jarrett said. "Our unemployment clients are already in a stressful situation as it is."

CHARLESTON, W.Va. -- When Mike Hoover visited an ATM earlier this month to get his unemployment benefits with his state-issued Chase Visa debit card, he had $88.53 in his account. But after he withdrew $80, his balance was $5.78.

The machine had charged him $2.75 -- even though he'd used a Chase ATM.

It's not Hoover's only complaint about Workforce West Virginia's debit card program. At some banks, he can withdraw only $40 at a time, even though he's eligible for $140 a week in benefits. He's never received a monthly statement from either Chase or Workforce West Virginia, he said.

"This is not a user-friendly program by any means," said Hoover, a 54-year-old Air Force veteran who was laid off from the Kanawha County assessor's office earlier this year.

Hoover is one of 37,500 West Virginians using the debit cards, which Workforce West Virginia has given to everyone who's filed for unemployment benefits since late March.

The program doesn't cost the state a cent. Instead, JPMorgan Chase makes its money off fees charged to jobless West Virginians like Hoover. 

State officials say the program is saving them $340,500 a year by cutting back on postage and printing, and eliminating the time it takes to replace lost checks. But now, complaints about the cards and a recent technical glitch have prompted Workforce West Virginia to offer alternatives.

Under JPMorgan Chase's contract with the state, the company can't charge West Virginia unemployment-card customers when they use Chase, WesBanco or Allpoint ATMs.

But when the bank recently upgraded the computers that control its ATMs, a technical error hit people with a $2.75 transaction fee, Chase spokeswoman Nancy Norris said.

"It is fixed," Norris said Friday. "We have since refunded all the fees that we incorrectly charged."

After the Sunday Gazette-Mail asked Workforce West Virginia about the program last week, acting executive director Russell Fry released a statement saying anyone who doesn't like the debit cards can choose to get their unemployment benefits by check.

That option is available until the state can offer the benefits through direct deposit, which Workforce West Virginia is in the "final stages" of developing, said spokeswoman Jama Jarrett.

"We don't want to cause any undue stress," Jarrett said. "Our unemployment clients are already in a stressful situation as it is."

Since March, a "handful" of recipients have asked to get their benefits by check instead of through the cards, she said. Workforce West Virginia granted those requests.

That's news to Hoover. When he called Workforce West Virginia to complain, they referred him to the bank, he said. The bank told him to call customer service.

Thirty other states also use debit cards for unemployment benefits, according to the U.S. Department of Labor's most recent count. Both consumer advocates and members of Congress have criticized the programs, saying they unfairly target the jobless.  

In August, the federal department issued an advisory to state workforce agencies, urging them to use direct deposit -- rather than debit cards -- for unemployed people who have bank accounts.

Among other things, the department also suggested issuing wallet-sized listings of all card fees; eliminating overdraft charges; and cutting or eliminating denial fees.

West Virginia signed a one-year contract with JPMorgan Chase in November. Six other banks also bid on the program, according to state Purchasing Division records. Other banks proposed more fees than Chase did.

West Virginians using the Chase Visa unemployment cards pay $2.75 to withdraw cash from ATMs outside the Chase network. They pay 75 cents to use the card to pay bills online, and 25 cents to check their balances at nonaffiliated ATMs. There's also a $1.50 fee if their card is denied for insufficient funds.

Everyone who gets a card receives a packet from the state explaining the fees and advice on how to avoid them.

But for people struggling to find work, those charges -- and the incorrect ATM fees Chase recently charged -- can add up, Hoover said. That money could help them fill their gas tank so they can drive to job interviews.

What's a minor glitch for Chase is an issue to people who are trying to get along, he said.

Reach Alison Knezevich at alis...@wvgazette.com or 304-348-1240.

 Since March, a "handful" of recipients have asked to get their benefits by check instead of through the cards, she said. Workforce West Virginia granted those requests.

That's news to Hoover. When he called Workforce West Virginia to complain, they referred him to the bank, he said. The bank told him to call customer service.

Thirty other states also use debit cards for unemployment benefits, according to the U.S. Department of Labor's most recent count. Both consumer advocates and members of Congress have criticized the programs, saying they unfairly target the jobless.  

In August, the federal department issued an advisory to state workforce agencies, urging them to use direct deposit -- rather than debit cards -- for unemployed people who have bank accounts.

Among other things, the department also suggested issuing wallet-sized listings of all card fees; eliminating overdraft charges; and cutting or eliminating denial fees.

West Virginia signed a one-year contract with JPMorgan Chase in November. Six other banks also bid on the program, according to state Purchasing Division records. Other banks proposed more fees than Chase did.

West Virginians using the Chase Visa unemployment cards pay $2.75 to withdraw cash from ATMs outside the Chase network. They pay 75 cents to use the card to pay bills online, and 25 cents to check their balances at nonaffiliated ATMs. There's also a $1.50 fee if their card is denied for insufficient funds.

Everyone who gets a card receives a packet from the state explaining the fees and advice on how to avoid them.

But for people struggling to find work, those charges -- and the incorrect ATM fees Chase recently charged -- can add up, Hoover said. That money could help them fill their gas tank so they can drive to job interviews.

What's a minor glitch for Chase is an issue to people who are trying to get along, he said.

Who's the greater villain: the guy at a bar who has one drink too many or the bartender who sold him that drink?

If you think there's enough blame to go around, you'll agree there are two wrongs and two rights on the controversy surrounding bank overdraft protection fees.

It's wrong for financial institutions to prey -- and that is what they are doing -- on the carelessness of their customers.

It's also wrong for customers to complain about overdraft fees that they can largely avoid -- by keeping track of what's in their accounts and not overspending.

Financial institutions are right when they argue they are providing a service customers clearly want or otherwise they wouldn't use it.

But government has every right to rein in an industry practice that in many cases has become predatory by design, allowing customers to overdraw their accounts.

No matter who you think is right or wrong on this issue, I must point out a troubling trend that just won't die: The financial industry continues to greatly profit from consumers' love affair with plastic.

Much of the overdraft penalties come from debit card transactions.

In less than 15 years, debit card transactions in the United States have grown from 1% of noncash transactions to more than 50%, according to new research from TowerGroup.

As access to credit tightened and people pulled back from using credit cards, they increased their debit card use.

Because debit cards are linked to individuals' banking accounts, customers supposedly are forced to spend only what they have in their accounts. The financial institutions have actually convinced some people that a debit card is the same as using cash.

It's not.

And it's not because the institutions allow you to spend -- either mistakenly or irresponsibly -- more than you have.

Most banks whose automated overdraft programs cover ATM and point-of-sale debit transactions only inform customers they don't have sufficient funds once a transaction had been completed, according to a 2008 study by the Federal Deposit Insurance Corp.

Overdraft penalties are assessed when a financial institution covers a check, ATM withdrawal or debit card transaction. When the customer eventually makes a sufficient deposit, the bank takes the overdraft amount plus a fee.

Unmonitored, the ease of using a debit card allows people to spend first and check later. Even a transaction costing a few dollars can trigger overdraft fees, which can be as high as $35.

The national median for overdraft fees on consumer checking accounts, debit cards and ATMs has increased to $26 per incident in 2009, up from $25 in 2008, according to Moebs Services, an economic research firm based in Lake Bluff, Ill. The firm collects and analyzes pricing trends for government agencies such as the Federal Reserve and the Government Accountability Office.

In a recently released survey of 1,000 consumers, the American Bankers Association found that 82% had not paid an overdraft fee in the previous 12 months. Of those who did pay overdraft fees, 5% said they paid 10 or more separate fees in the 12 months.

Nearly all who were hit with fees said they were glad the payment was covered.

Clearly, people should be more responsible. But once again, financial services institutions have crossed the line of fairness. And to be honest, the federal government has helped.

The federal agencies that regulate the industry determined several years ago that overdraft protection programs were not extensions of credit, a ruling that was ridiculous.

Overdraft protection is most certainly the extension of credit. So let's call it what it is and put in some stronger consumer protections.

Financial institutions should get specific consent before signing up a customer for overdraft protection.

Consumers should be given an opportunity at every single point of sale to decline a purchase or cancel an ATM withdrawal if they don't have enough money in their account (even if they've consented to overdraft protection).

These are easy and fair fixes. Some major banks have already taken the step to change their overdraft policies. More will need to be legislatively pushed to do the right thing.

Young adults between 18 and 29 years old don't trust traditional financial institutions very much, according to a new survey commissioned by Microsoft Corp.

Two-thirds of the survey respondents said they won't invest money in the stock market and more than half said they won't invest in a 401(k) or other retirement plan. Slightly less than half said they'd invest in an insurance policy and 22 percent said they would not even deposit money in a bank.

The survey was conducted by KRC Research in Washington, D.C., and asked 500 young people questions about finance.

The youths, which Microsoft describes as the "millennial" generation, weren't too optimistic about the future of U.S. financial institutions. There are an estimated 80 million U.S. youths in the "millennial" generation, Microsoft said.

More than 80 percent said they believe that more financial institutions will fail in the future and 80 percent said that U.S. financial institutions don't deserve any more bailout money.

"The financial crisis has created a deep sense of mistrust in millennials, which is keeping the next generation of wealth on the sidelines," said Colleen Healy, general manager of U.S. financial services at the Redmond computer giant (Nasdaq: MSFT), in a statement.

Aside from the "Credit Crunch" and the "Great Recession," credit and debit card issuers are facing a "Perfect Storm" of an accelerated implementation of the "CARD Act," the creation of the "Consumer Financial Protection Agency" and swiftly moving legislation to attack overdraft fee policies. Over the past week, four major banks announced plans to adjust overdraft practices early next year, the chairman of the House Financial Services Committee proposed a less powerful version of the "CFPA" to get it passed and several legislators are now calling for the final batch of new credit card rules be moved to December 1st of this year instead of February 2010. The American Bankers Association says credit card banks are working diligently to implement the new "CARD Act" provisions by next February, but it would be extremely difficult, if not impossible, for them to meet the new deadline.

On top of all this the FDIC is now calling for tighter restrictions on overdraft fees amidst the building momentum for federal lawmakers to address the issue that is directly linked to growing debit card usage.

BB&T announced it will eliminate overdraft fees for debit card and ATM transactions when clients overdraw their accounts by less than $5, and will charge no more than four overdraft fees per day. BB&T also will begin to alert clients at BB&T ATMs when they are making a withdrawal that would overdraw their account. Last week, Wells Fargo announced it will eliminate overdraft fees for customers when they overdraw their accounts by $5 or less and will charge no more than four overdraft fees per day. Chase announced it will eliminate overdrafts for debit cards unless the customer opts in to overdraft services; modifying the posting order to recognize debit-card transactions and ATM withdrawals as they occur; eliminating overdraft fees if a customer’s account is $5 or less overdrawn and reducing the maximum number of overdraft fees per day to three from six. U.S. Bank will eliminate overdraft fees when a customer's account is overdrawn by less than $10, regardless of the number of overdraft transactions that may have occurred; limit the number of overdraft fees to no more than three per day; and offer the "opt out" ability to any customer who would prefer that we decline or return any transaction on their account, whenever possible, when they are presented against insufficient funds.

Despite the changes, the Center for Responsible Lending says Americans are fed up with bank overdraft practices. Media scrutiny and proposed legislation in Congress prompted three of the nation's largest banks to unveil changes to their overdraft policies this week. But the changes are far from enough and, in fact, underscore the need for comprehensive overdraft reform as quickly as possible.

Controversial bank account fees, which have fattened banks' bottom lines at the expense of vulnerable consumers, are rapidly becoming a black eye for the industry.

Under siege are the fees charged to consumers who spend more than they have in their accounts, whether by check, debit card or at the ATM.

Last week, four of the nation's largest banks said they would scale back some of their overdraft policies. Their efforts, while meaningful, have failed to appease lawmakers, including powerful Senate Banking Committee Chair Chris Dodd, D-Conn., who is preparing legislation to crack down on what he calls a pattern of "abusive" practices.

At first glance, banks' practices seem reasonable enough: Overdraw your account, and the bank will cover the transaction -- for a fee. The problem is, most banks don't ask consumers if they want their transactions automatically paid. In recent years, as banks realized how lucrative these fees can be, they've made it easier for consumers to overdraw their accounts, to the tune of $36.7 billion in revenue last year, USA TODAY research has found.

Banks have done this by covering debit card transactions as small as $1 and charging a fee as high as $35. Some also charge fees before consumers overdraw by deducting a purchase when it's made, instead of when it clears. And they've processed transactions from highest to lowest dollar amount -- which empties consumers' accounts quicker and triggers more overdrafts.

Ironically, the changes banks have made to their overdraft policies are only fueling calls to reform the entire industry. Overdraft coverage can be less regulated and cost more than other high-cost (and equally criticized) options, including payday loans, in an estimated $70 billion short-term credit market. On average, consumers will pay a fee of $26.68 every time they overdraw their account, according to data from Moebs Services, an economic research firm. That means that if consumers overdraw by $100, they'd pay an annual percentage rate (APR) of 696%, if the credit is paid back in two weeks, according to a USA TODAY analysis. This compares with an APR of 450% on a $100 payday loan with an average fee of $17.25.

"When consumers (overdraw) recurrently, it is a credit product, and they're paying eye-popping rates," says Sheila Bair, Federal Deposit Insurance Corp. chair, who is pushing for banks to get consumers' permission before covering overdrafts, for a fee, and to disclose APRs.

Banks have long said that customers appreciate automatic overdraft coverage and that this service helps consumers avoid the embarrassment of a declined transaction. But they're now acknowledging these fees can push consumers into distress.

Starting next year, Chase won't pay debit card overdrafts and charge a fee without consumers' consent. Bank of America is reducing the maximum number of daily overdraft fees consumers could be hit with, from 10 to four, and letting customers opt out of this coverage. "We've seen that the overdraft fees have become a bigger problem for customers," says Brian Moynihan, president of BofA's consumer and small-business banking group.

Tam Tran, 36, of Columbia, Md., has paid BofA more than $5,000 in overdraft fees in the past year.

In 18 years with the bank, Tran says he's never had problems managing his money. But when his father went into the hospital, overdraft fees piled up for small-dollar debit card items. He repeatedly asked the bank not to approve transactions he didn't have money for and to stop clearing them from high to low dollar amount, but BofA kept doing so. The bank said it approved his transactions because he had been a "good customer," he says.

Tran says the bank's recent changes are "just a little cork in a major hole." BofA has "set up a policy to capitalize to the point that the rapid accumulation of fees prevents a customer from ever rebounding," Tran says. "Charging that many fees in a matter of months ... should be illegal."

BofA says it has a "long history of helping customers manage their finances." After USA TODAY contacted BofA, it refunded Tran $1,260. Tran says he takes responsibility for his mistakes, but BofA needs to take responsibility for its "bad policies."

'Trapped in debt'

Through the years, banks' high overdraft fees have become marketing fodder for payday lenders.

On its website, Advance America, one of the nation's largest payday lenders, says its loans -- which carry a fee of $12.50 to $22 per $100 borrowed -- can be cheaper than bank overdrafts.

This marketing, coming from an industry that has long been criticized itself for steep fees that could push consumers into unmanageable debt, speaks to the challenge banks have in repairing their image.

G. Michael Flores, founder of Bretton Woods consulting firm, says younger consumers with low to moderate income are the ones using both payday loans and bank overdraft coverage.

"We've been saying it for a long time, that (with) virtually any comparison of the cost of what we do and the cost of a (bank automatic overdraft), the payday product is much cheaper," says Billy Webster, board chair of Advance America.

The smaller the overdraft, the higher the APR. On a median debit card overdraft of $20, in which the lender charges a fee of $27, the APR translates to 3,520%, if the credit is paid back in two weeks, says a 2008 FDIC report. Payday loans, meanwhile, carry an APR of 391% to 449%, assuming a $15 to $17.25 fee per $100 borrowed.

Yet, payday loans can cost more than overdraft fees on large-dollar transactions. For instance, if a consumer overdraws by $200, they'd pay the same $27 fee (a 348% APR), but if they borrowed the same amount from a payday lender, they'd have to pay an average $34.50 fee (a 450% APR), Moebs Services says.

Michael Moebs, the founder of Moebs Services, cautions that "at the low end of any loan amount, we're going to see very high APRs." He also points out that payday loans and overdraft coverage can cost less than the alternative. Average bounced-check fees charged by the merchant and bank total $53.62, he says.

Richard Hunt, president of the Consumer Bankers Association, says payday loans and overdrafts are a "day and night comparison." The first may cater to less creditworthy consumers, he says, while the other is a "service" to those who make a mistake. Research released in 2007 by Marc Fusaro, then an assistant economics professor at East Carolina University in Greenville, N.C., finds that 79% of consumers who overdraw bank accounts do so by mistake. The other 21% are overdrawing because they need credit.

Advocates say consumers who need short-term credit should consider borrowing from family or finding cheaper alternatives, such as a line of credit. Those who use payday loans or overdraw risk getting mired in debt, they note.

"Both industries are completely dependent on borrowers trapped in debt to generate most of their revenue," says Eric Halperin, director of the Center for Responsible Lending's Washington office.

Many borrowers can't pay back the payday loan with a single paycheck, but lenders still debit their bank account for the total due, possibly triggering bounced checks or overdrafts, says Jean Ann Fox of the Consumer Federation of America.

The FDIC is working to find affordable alternatives to payday loans and overdrafts. A small-dollar loan program launched in 2008 has shown that "banks can provide lower-cost loans in a way that is profitable and more responsible," Bair says. The problem is that banks may be reluctant to "cannibalize" on their overdraft fee income with lower-cost loans, Bair wrote in a 2005 report when she taught at the University of Massachusetts-Amherst.

Probity Financial Services of Austin is offering an alternative to high overdraft fees: It's partnering with a small bank to offer a checking account that, for a $19.95 monthly fee, allows consumers to overdraw by as much as $500, but won't charge them a fee each time they do so.

Bank changes 'fall well short'

Fusaro's research feeds a frenzied debate about whether overdraft coverage should be regulated as loans and subject to an APR, similar to what's imposed on payday loans. Even though banking regulators have acknowledged that overdraft coverage is a form of credit, Fusaro believes it would be "misguided" to regulate them as loans.

Nevertheless, consumer advocates are clamoring for tighter restrictions on payday loans and overdrafts, such as a 36% interest rate cap. They also want banks to disclose APRs on overdraft products so consumers can compare their options.

Halperin says that banks' recent changes to their overdraft policies, while an improvement, "fall well short of providing full protection for consumers."

Rep. Carolyn Maloney, D-N.Y., sponsored a bill she believes will give all bank customers "strong and consistent protections from deceptive overdraft policies." It would require banks to get consumers' permission to pay an overdraft, and charge a fee, and clear transactions in chronological order.

The Federal Reserve, which has been criticized for not curtailing banks' lending practices during the boom, is also under pressure to crack down on industry overdraft practices. The Fed has said it plans to issue a rule by the end of the year.

If the Obama administration has its way, though, it would reform lending through the creation of a Consumer Financial Protection Agency, which would have the power to regulate credit products such as overdraft coverage and payday loans.

This agency is needed, says Elizabeth Warren, a Harvard law professor, because with financial products, "where it's possible to change the agreements by including an extra piece of paper stuffed in a bill, the industry will constantly reshape the terms."

"When Congress outlaws one practice, the industry just moves to a practice that accomplishes the same thing," adds Warren, who chairs the Congressional Oversight Panel, created by Congress last year to study how financial institutions' actions affect the economy. "It's like hammering fence posts in an open field: It's easy to get around them."

Banks have already found ways to minimize the impact of credit card reform passed earlier this year by Congress. Even before the ink was dry on the law, banks raised rates for a broad spectrum of new and existing credit card borrowers. In the first two quarters of 2009, the lowest advertised credit card rates rose by 20%, even as banks' funding costs declined, Pew Charitable Trusts says.

Tran feels it's not enough for banks to do "damage control" by changing some overdraft policies. Regulators, he says, have to address a systemic problem where banks will charge unsuspecting consumers as many overdraft fees as possible. Banks, he says, have "gone too far."