Overdraft Fees Require Customer Consent, Says The Federal Reserve

WASHINGTON — Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.

The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.

For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.

Under the Fed's new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.

Many consumers do want checks and regular electronic bill payments to be covered in the event of an overdraft, Fed officials said. As a result, those transactions aren't covered by the rule.

Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.

Many larger banks, including Bank of America Corp., JPMorgan Chase & Co., U.S. Bank and Wells Fargo & Co. began instituting similar "opt-in" plans in late September after coming under fire for the fees.

But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, said new rules were still necessary to ensure smaller banks followed suit.

Many lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year's financial crisis. Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.

Dodd also proposed legislation last month that would have imposed limits similar to the Fed's on the banks' ability to charge overdraft fees.

Comments

[NoMoreBail2]

We, the American people, dug ourselves into this hold for which there is no escape.a

hat tip to: http://financeopinionss.blogspot.com

[edejan]

When we first got turned on to the idea of a debit card, we preferred to use that instead of credit cards so we didn't "overspend­." We assumed that the transaction would be declined if we didn't actually have sufficient funds in our checking accont. BUT NO!!!! It's just another scam, another ripoff and the government has done nothing but pile on top of this to hurt the consumer. The only safe way to manage your money is to keep it in your hands but it's impossible to do that in today's world.

[The Thrifty Grad]

Proper usage of a check register eliminates the vast majority of the issue. You can't overdraft cash, right? Well, you need to view your checkbook the same way. It's just cash in a different form.

As a banker, I've seen this issue boil to a head since the creation of the debit card. In "the old days," people didn't leave home without their checkbook, which included their check register. With debit cards, the plastic gets swiped and the receipt gets shoved into a pocket, only to get thrown on the counter when the person gets home. Maybe they reconcile their register a day, a week later. Maybe.

By then the damage is already done.

I have a nice article on my (noncommerical -- no ads whatsoever) finance website on how to avoid these charges:

http://www.thethriftygrad.com/how-to-avoid-overdraft-charges-when-using-your-debit-card

[InYourWorld]

That is the voice of reason, however people don't want to take responsibility for their actions, instead we can blame someone for not knowing how much money we are spending. Internet access and banking makes this sooooo easy for people that dont want to 'burdened' with documenting their spending with a paper trail.

[mbaty]

It's a good idea--as the Fed struggles for relevancy, but it still doesn't go far enough. I don't know one person who hasn't been swindles by "overdraft fees" at their bank, so this is a good baby step.

[IndelibleVoice]

A great start toward regulating banks. More work needs to be done though and we all need to keep an eye on banks who are, of course, only looking out to make millions for themselves.

[NoMoreBail2]

No more bailouts for too big to fail. NO more stupid tax cuts and other gimmicks. Need more jobs, affordable education & heath care.

good articles; http://financeopinionss.blogspot.com

[ncmom54]

We need public owned banks...
http://www.huffingtonpost.com/ellen-brown/reviving-the-local-econom_b_321747.html

[Jason Scott Breniser]

Finally the Fed's doing something useful. This new policy is great. Banks have a tendency to trick you then charge 300 dollars for going over 10 bucks. way to go!

[twhiting9275]

Useful? Tell me how this is USEFUL?

Does it cover checks? Nope
Does it cover ACH? Nope
Does it stop the banks from rearranging YOUR transactions to better suit them? Nope
Does it force banks to give you the money you deposit when you deposit it? Nope

So, what DOES this do here? It does very, very little in this area. This will force banks to acknowledge this specific problems, but let the much, much more global problem go untreated.

[Cinnamonape]

This change won't take place until JULY!

Way to go FED...real­ly allowing the Banks to gouge for almost another year! If they really cared about consumers they could institute this starting January 1st!

[ncmom54]

Yea... just turn their heads while the banks have their way with their customers until July.
Why does eveything have to be off OUR backs? They caused this mess and should be in jail!

[Servility]

Here's a sure fire way to keep banks from gouging their customers.­.. Take personal responsibility for your finances and make sure you don't overdraft!

[PhilipTaylor]

WHAT HAS THE FED Reserve (19l3) Done for AMERICA by setting Interest Rates and Regulating Banks?

FED has worked to DRIVE AMERICA from

# 1 Creditor Nation in 1916 to
# 1 Debtor Nation in 2009

It has worked to REDISTRIBUTE WEALTH UP TO THE EXTRAVAGANTLY WEALTHY and Make the Average American LOSE WEALTH!

Causing the WORST IMBALANCE OF INCOMES IN US HISTORY!

We need to wrestle control back to OUR Government of Our Monetary Policy!

It is OUTRAGEOUS that the BIG BANK OWNED FED Reserve System runs our Monetary Policy for the Convenience and PROFITS of the Biggest Banks!

Simply make the FED Reserve an Agency within Government with OVERSIGHT by Government Accounting Office!

We must Democratize the FED!

The FED is now run to create Bubbles and Busts.

Bubbles = pull in the "SUCKERS" at High PRICES!
BUSTS = Harvest "SUCKERS" at LOW PRICES!
BAILOUTS = Harvest "ALL AMERICANS as SUCKERS" for GREEDY BANKSTERS

[PhilipTaylor]

BS FED Reserve!

THE HORSES ARE OUT OF THE BARN MONTHS AGO!

Also D0DD B1ew the Credit Card Bill by waiting 9 months and placing NO CAPS ON ANYTHING!

[schatsie]

Bingo, this is jsut a sop for the masses...a­nd they are not going to buy it....

This is a coding change that will take the banks IT staff about 15 minutes to write....

[twhiting9275]

The way banks do business MUST be regulated with a much, stricter guideline. Banks have the ability to make life a living hell for their customers, and do so.

#1: They control when you get your money
I make deposits via ATM's frequently. Sometimes, I make a mistake and deposit over $100 in a (non branch) ATM to cover charges coming through my bank.
Such was the case last month. I placed money in on Friday, then on Sunday, both being credited as 'monday' deposits, and the extra ($100) held back. Ironically when it WAS credited, it was credited on the day of the deposit, but I still had to pay OD fees

#2: They control the order your deposits:
Using the above example, I realized the mistake (a day too late) and put funds in the bank to cover other purchases that were going to hit, to prevent more overdraft fees. What did the bank do? They used those funds to cover the overdraft fees, causing more overdraft fees. THAT I got reversed, but it took me going through countless talking heads

A week back, I had funds in the account to cover a number of transactions, but a larger one went through earlier than scheduled. The bank paid the larger one, but charged me for the smaller ones.

Does this law cover any of these? Conveniently, no. ACH transactions are exempt from this, so, this really offers little protection.

[Carolab]

Similar thing just happened to us. We had paid half on an on-line purchase and when the shipment finally arrived the vendor charged the second half due without telling us.

Bank overcharged even though that was pending because my husband had put a deposit in the account the day before.

[benglert01]

BTW, local banks here in Pittsburgh charge an intrabank fate of $10 on NSF, but charge the customer $34.

[benglert01]

all this crap about dishonesty. really. merchants have telecheck, so if you write bad checks, you are flagged. I van tell you personally that banks have the technology to tell them what you have pending before it even hits online banking. there is no reason the transaction shouldn't be declined at the point of sale terminal if you opt out. national city told the OCC, after I filed a complaint, that consumers would rather overdraft than be embarassed by a decline of transaction. wait, so I'd rather pay $34 extra dollars for a $1.50 coffee instead of being embarrassed by a 'sale declined' message? they also said that overdraft is automatic in the terms and conditions when I signed up? shouldn't I be able to opt out? give me a break. it's raping and pillaging of the middle class. egg the freaking banks. tea party them.

[blimie]

Why the Federal Reserve issuing this self important statement as if they have some say in this. Something like this should be covered in the existing banking regulations and if it is not then it needs to be changed.