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The amount of money some people pay annually in bank overdraft fees is “a little mind-boggling,” says Tim Wolf, president and CEO of State Savings Bank in West Des Moines.

“It’s a house payment or a car payment in some cases,” said Wolf, whose bank charges $28 for each overdraft transaction it processes.

A little less than two months from now, new federal banking rules go into effect that will require banks and credit unions to obtain prior approval from their customers before they can apply overdraft protection and fees to their debit card purchases and automated teller machine (ATM) withdrawals.

The new rules, effective Aug. 13 for existing accounts and July 1 for new accounts, were enacted last year as part of the Consumer Financial Protection Act of 2009 and apply only to ATM and debit card transactions. After those dates, customers who want overdraft protection on those transactions must have opted in, or granted permission, for their bank to provide that service.

Customers who do nothing may soon find their debit card is declined if the transaction would have created an overdraft.

Consumers can opt in or opt out of their bank’s overdraft protection on their debit and ATM transactions at any time. The rules don’t apply to checks, automated transfers of funds, bill-pay transactions or withdrawals made at the teller line, which means that even if someone opts out, he or she could still incur an overdraft fee from those types of transactions.

“It’s all about choice,” said Dave Nelson, chairman and CEO of West Bank in West Des Moines, “If they want to have this convenience, we’re going to make it available. We’re getting ready to notify our customers to let them choose if they want this service available.”

The intent of the new rules, known as Regulation E, is to help consumers curb the flood of overdraft fees charged by banks and credit unions, which can add up quickly when fees as high as $35 are multiplied by several overdrafts in a single day. Last year, financial institutions collected an estimated $38.5 billion in overdraft fees from nearly 50 million customers, more than double the amount charged just two years earlier.

Nelson said West Bank does not currently allow accountholders to overdraw their accounts with an ATM or debit card transaction. Instead, the transaction would be declined.

“Our goal is to prevent overdrafts,” said Nelson, whose bank charges a $27 overdraft fee. “It is still illegal to write a bad check. So we don’t want to encourage that, but we want to give our customers some convenience and flexibility if they want that.”

According to a national consumer survey conducted by The Nielsen Co., 26 percent of respondents said they would opt in to an overdraft program, 22 percent would not and 39 percent were undecided. Those who said they would opt in were more likely to have had an overdraft within the past year.

In Iowa, it’s estimated that more than 344,000 residents incurred overdrafts on their bank accounts last year, according to a survey conducted in late 2009 for the Iowa Bankers Association and the Iowa Credit Union League. In that survey, 22.4 percent of respondents said they or a joint accountholder had used the overdraft protection service provided by their financial institution over the past 12 months. Of those who had incurred an overdraft, nearly 94 percent said they were glad the payment was covered.

Among State Savings Bank customers, who were recently mailed a notice of the change, “I would say most people are just opting in,” Wolf said. “They’re saying, ‘Give me what I have right now.'”

Nelson, whose bank plans to mail notices next month, said he doesn’t know how many customers may choose to opt in. “I know there will certainly be people that will want this flexibility,” he said.

Keith Lobis, community bank president for Wells Fargo & Co.’s Central Iowa region, said Wells Fargo is using a variety of means to notify customers of the change, including personal contact at the branches, mailers with statements, signs at ATMs and information on the banking website.

“Customers bank with us in lots of different ways, so we try to touch them in numerous ways,” he said. “Most importantly, our team members have brochures and handouts and have all participated in conference calls and training so they can be a resource to customers who have questions.”

Currently, each Wells Fargo accountholder has an “overdraft tolerance” amount set on his or her account that the bank uses to determine whether it will approve a transaction that creates an overdraft, Lobis said. Each customer is eligible for establishing overdraft protection on the account and “that is something that we actively talk to customers about,” he said.

Wells Fargo charges an overdraft fee of $25, which increases to $35after the first day the overdraft occurs.

Under current banking rules, each bank can choose how to apply overdraft policies. Some banks automatically enroll customers in their standard overdraft protection plan when they open an account, while others offer it as an option, sometimes with an annual fee in addition to transaction fees.

Overdraft transaction fees are justified, to an extent, Wolf said.

“There’s no question it costs money to process an overdraft,” Wolf said, adding that he believes community banks’ fees tend to be lower than those charged by the larger regional banks. “The cost is probably the same whether it’s one check or five checks that have insufficient funds, and $28 would probably cover it. But that’s not the way it’s set up.”

In many cases, Wolf said, customers aren’t aware of the provisions of their bank’s overdraft protection programs. His bank offers both an overdraft privilege program, which enables customers to overdraw to a predetermined limit and incur an overdraft fee, and overdraft protection, in which customers have pre-applied for a line of credit to cover any overdrafts as a loan.

“That’s the big question,” he said. “Is the consumer clear on the difference between overdraft privilege and overdraft protection? I would encourage people to do a little research to understand what they have now.”