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Pay-as-you-overdraft may be bank's next fee

You load up the cart at the supermarket, hit the checkout, and your debit card is declined because you're short on dough.

You load up the cart at the supermarket, hit the checkout, and your debit card is declined because you're short on dough.

Do you:

A) Take some groceries out of the cart and try again to buy what can be covered by the money in your checking account?

B) Slam the cart into the wall and vow that you're going to "opt in" for overdraft coverage, whatever that is, and then drive off to get a special-deal bucket of chicken because you know you have at least $10 in your account?

C) Wait to hear a ping from your mobile phone?

In what would be one of the more unusual pilot tests, Bank of America is considering trying to buzz some customers with a text message to say they can make a payment after all with that debit card - if they agree on the spot to pay a $35 overdraft fee. Or you could avoid that $35 fee if you remember to put more money in your account by the end of the banking day at 8 p.m. at Bank of America ATMs.

Ever think the world of plastic revolves around ways to get you spending way more than you can?

A Federal Reserve ruling requires banks and credit unions to obtain customer consent through an opt-in policy before charging an overdraft fee to let a debit-card transaction go through when the account is short.

"The fees can pile up very quickly," said Jean Ann Fox, the Consumer Federation of America's director of financial services.

Fox began urging consumers not to opt in from the moment the new rules went into effect last summer.

Nearly a year later, many consumers still don't know what "opt in" means.

Some consumers assume they won't be charged a fee for overdrawn checks if they opt in - which is not true. The opt-in coverage - with fees - does not deal with checks, just debit cards.

Chi Chi Wu, staff attorney for the National Consumer Law Center, said at times consumers claimed they opted in for the coverage only to get the bank to stop contacting them about it.

What consumers need to realize, Wu said, is they can change their minds, too.

"They always have the right to opt out," she said.

Overdraft fees continue to be a hot issue - especially for college students, people living paycheck to paycheck, and those still trying to recover from the Great Recession.

Bank of America received favorable publicity last year after it eliminated overdraft fees for debit card transactions. The purchase would be declined if there's not enough money. Simple.

Citibank also does not approve debit card transactions for a fee when a customer is overdrawn.

But next year, Bank of America is considering a test using text messages on the spot at the store.

The purchase would not be declined if you got that text message and then opted in for overdraft coverage and fees.

Under the Bank of America text test, advance authorization paperwork would be necessary before you'd be sent that text message.

If you opted in, you'd be agreeing to pay a $35 overdraft fee. Or you could avoid that $35 fee if you remember to put more money in your account by the end of the banking day at 8 p.m. at Bank of America ATMs.

Bank of America offers a transaction-by-transaction choice for opting into overdraft coverage at the ATM - so this point-of-sale change, if made, would be similar to that type of choice.

Consumer groups have been critical of how much marketing banks have done to get people to opt into overdraft coverage - and extra fees - since the Federal Reserve rules went into effect last summer.

"Banks have a lot of incentive to make sure customers opt into this product," said Rebecca Borne, senior policy counsel for the Center for Responsible Lending in Washington.

The Federal Reserve rules, after all, do not limit how much banks can charge for the service; how many times a customer could be charged overdraft fees, and how banks still can collect fees for overdraft charges on a debit card by taking the payment out of the next deposit.

If the fees are automatically taken out of the next deposit, you might not realize how little you have left in the checking account.

"The overdraft product has not been sufficiently constrained by federal consumer protections," Fox said.

Fox and other consumer advocates want the Consumer Financial Protection Bureau take on a high-profile issue such as overdraft fees.

Among other things, some consumer groups would like to see a requirement that banks could not process transactions out of order. If the largest check written that day is processed first, smaller charges made earlier could trigger more fees.

Citibank said that beginning in July, it will process a customer's consumer checks from low to high - meaning the check with the smallest dollar amounts are cleared first, the largest amounts cleared last.

Be warned, though, the change does not apply to automatic bill pay or Automated Clearing House transactions - or small business/commercial bank checks.

When it comes to debit cards, you wonder how many people would react to a text.

Some consumer advocates, including Wu, are critical.

She claims such easy access makes the bank account no different than quick-fix payday loans.

I'd ignore that text message in most cases. Let's face it: Most times you do not need that gadget or goody - and the fee that goes with an overdraft.

The cost of opting in:

 -There is no fee if you don't opt in for debit overdraft.

-Opting into a debit card overdraft plan has no impact on whether the bank will cover overdrafts triggered by checks and other types of transactions.

-Carefully read the terms and understand the fees for overdraft coverage.

-Pay attention to how checks, preauthorized automatic bill payments and other transactions are paid from your account. If a larger check or payment is processed first, you might bounce a couple of smaller checks and the fees can build up quickly.

-Take time to understand how often you can be charged an overdraft fee. Bank of America will apply overdraft fees to four transactions per day at $35 for each overdraft.

Bank of America charges a second $35 sustained overdraft fee if the overdraft and first fee are not repaid in a few days.

-Ask your bank or credit union to link your savings to checking to cover shortfalls in checking. The fee is generally much smaller to make a transfer from your savings - if you have enough money there - than to pay an overdraft fee per overdraft. A transfer fee can be $7 or $10 per day for a transfer of all the needed money from savings to checking to cover shortfalls. But overdraft fees can be $25 or $35 or $37 per overdraft.

You might spend $7 instead of $90 in some cases. Some credit unions offer a limited amount of free transfers per month. If you use online banking, you may transfer funds on your own from savings to checking at no cost.

-Take time to shift money from savings to checking on your own as your balance gets low.

-Compare rates and fees for checking accounts at banks and credit unions.