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Overdraft charges baffle unsuspecting college students

DETROIT – Joseph Rizk, 20, figures it was one trip to Taco Bell that sent his checking account over the edge.

When he was a senior at Wayne State University, Rizk pulled out his Chase debit card to get some fast food. He spent about $5 more than he had in his checking account. He didn’t spot the trouble early enough and ultimately got hit with about $350 in banking fees.

“I overdrew, and they pretty much pummeled me with charges,” said Rizk, who graduated this summer with a bachelor’s degree in biological sciences.

This is one story that’s smart to share with anyone who is heading off to college. The debit card – no matter how cute all those commercials might be – isn’t necessarily your best friend.

And at a time when many parents are struggling to cover higher tuition bills, the last thing a college student needs to do is trigger hundreds of dollars in senseless overdraft fees, too. The fees add up quickly at $25 to $35 a pop.

Overdraft charges are costing people about $17.5 billion each year, according to estimates by the Center for Responsible Lending, a consumer group that analyzed data on overdrafts. Banks have made it easier for consumers to overdraw their accounts and rack up big fees.

Young consumers who prefer paying with plastic, instead of paper, are vulnerable.

About 45 percent of overdrafts are attributed to using a debit card or taking out cash from the ATM, according to the center.

Pulling out a debit card to buy fast food has turned into a financial tripwire.

“In the past you couldn’t overdraft at McDonald’s, now you can,” said Eric Halperin, director of the Center for Responsible Lending’s Washington office.

Three years ago, Halperin noted, most banks routinely denied debit card purchases at the checkout lane if you did not have enough money in your checking account.

“The fact that you can overdraft with a debit card is relatively new,” said Halperin, who favors legislation that would require banks to, among other things, disclose the annual interest rate on what consumer groups call overdraft loans to consumers. (Banks call the charges overdraft fees.)

In the last few years, banks and credit unions began allowing more debit card purchases to go through at checkouts as a convenience to consumers, even if there is not enough money in the checking account.Most customers are routinely enrolled in so-called bounce-protection programs that, according to consumer groups, are not explained well and turn out to be expensive.

In many cases, consumers would pay less in fees if they went to the bank and set up a system to link the checking account to a savings account, a line of credit or a credit card to cover an overdraft.

For young consumers, the rules can be particularly tricky.

Some think they’re in the clear because they’ve just checked their balances with tellers or online.

But that account balance often does not reflect how much money there is available to spend.

“We don’t have real-time transactions. There will always be outstanding transactions that the consumer has authorized but have not hit the bank,” said Nessa Feddis, senior federal counsel for the American Bankers Association in Washington.

It’s easy to forget that the debit card is really just a plastic version of a check.

“You’ve got to keep track of what you’re spending, just as you did in the old days when you wrote checks,” said Mary Kay Bean, a spokeswoman for Chase in Detroit.

And if you wait until you see the next statement, it’s too late.

“The debit card is really where it’s a serious problem,” argues Ed Mierzwinski, the consumer program director of the U.S. Public Interest Research Group in Washington. “It’s harder to keep track of your balance because of the tricks banks use.”

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