Anger at overdraft fees gets hotter, bigger and louder

— -- 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.