Article Treasure Cove

Overspending on Charge Cards Is a Boon for Banks

When Peter Means returned to alumni association school after a career as a civic servant, he turned to a debit card to help him spend his money more carefully .

Banks and credit concords have long pitched charge cards as a convenient and reasonable method to purchase . But a growing number are now allowing consumers to exceed their balances — for a cost .

Banks market it as overdraft protection , and the fees it produces have become an important spring of income for the banking industry at a time of big losses in other actions . This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts , typically on debit card buys or checks that exceed a customer’s balance.

In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.

But because consumers use charge cards far more often than credit cards, a waterfall of fees can be set off quickly, often for people who are least able to afford it. Some banks further grow their revenue by manipulating the order of a consumer’s transactions in a way that causes more of them to incur overdraft fees.

“Banks will let you overspend on your charge card in a method that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

Debit has essentially changed into a stealth way of credit, according to critics like him, and three quarters of the nation’s largest banks, except for a few like Citigroup and INGDirect, automatically cover debit and A.T.M. overdrafts.

Although rulers have warned of abuses since at least 2001, they have done little to check the explosive increase of overdraft fees. But as a consumer outcry grows, the practice is under attack, and regulators plan to introduce new protections before year’s end. The proposals do not seek to ban overdraft fees altogether. Rather, regulators and lawmakers say they hope to curb abuses and make the fees more fair.

The Federal Reserve is considering requiring banks to get leave from consumers before enrolling them in overdraft programs, so that users like Mr. Means are not caught unaware at the cash catalogue .

Representative Carolyn Maloney, Democrat of New York, would go even further by requiring warnings when a debit card buying will overdraw an account and by barring banks from running the most expensive purchases through accounts first.

Bankers say they are merely loading a fee for a convenience that defends consumers from embarrassment, like having a load card rejected on a dinner date.

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