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Agency: Opting for checking account overdraft protection means higher fees

With overdraft protection, a check won’t bounce, but you’ll pay a hefty fee.

Lisa Poole /Associated Press/File 2009

With overdraft protection, a check won’t bounce, but you’ll pay a hefty fee.

WASHINGTON — A federal agency says consumers who opt for overdraft coverage on their checking accounts pay higher fees and are more likely to have their accounts closed than those who decline it.

A report by the Consumer Financial Protection Bureau says it’s hard for consumers to anticipate and avoid overdraft charges. It found that the cost for ‘‘opting in’’ for overdraft coverage varies widely. Customers of some banks paid an average of $298 annually, while those at others paid $147.

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The bureau has been investigating overdraft fees, which are a major source of bank revenue. Its examination could result in new rules.

The Consumer Bankers Association, which represents large and regional banks, urged the bureau not to adopt any policy that could push consumers toward financial firms outside the banking industry that are less strictly regulated and offer costlier alternatives.

‘‘Consumers have the right to choose the products and features which best provide for their family’s daily financial needs,’’ Richard Hunt, the group’s chief executive, said in a statement Tuesday. ‘‘Fortunately, the marketplace for checking accounts is extremely competitive, and banks make every effort to educate their customers about the options available to them.’’

A bank charges an overdraft fees when a customer tries to spend more money than there is in an account. The banks allows the transaction but charges a penalty fee of as much as $35.

Consumer advocates say overdraft fees hurt the people who can least afford them because poorer customers are more likely to drain their checking accounts to close to zero.

‘‘Consumers need to anticipate and avoid unnecessary fees on their checking accounts,’’ said the consumer bureau’s director, Richard Cordray. ‘‘But we are concerned that some overdraft practices may increase consumer costs beyond reasonable expectations.’’

In 2010, the Federal Reserve barred banks from automatically enrolling customers in so-called overdraft protection programs for debit card and ATM transactions. Banks must obtain a customer’s consent, letting the customer ‘‘opt-in.’’ Without overdraft protection, a transaction is declined if the customer can’t cover it. The rule did not apply to checks, online bill payments, or recurring debits, such as a monthly cable bill. Nor did it limit how much banks can charge for the overdraft service.

Banks have responded by marketing overdraft protection aggressively.

A negative account balance can lead to an involuntary closing of the account, which can leave a black mark on the consumer’s record and make it harder to open a new account, the report noted. It found that involuntary closure rates at some banks were over 2.5 times higher for customers who had opted for debit and ATM overdraft coverage.

The overdraft fees are complicated, the report said, varying among banks with regard to the number of overdrafts that can be incurred in a single day, for example. The maximum amount a bank is willing to advance to a customer as protection can vary widely.

The order in which check, debit card, and other transactions are posted to an account can affect the number of overdraft fees, and the report found widely divergent posting practices among banks.

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