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And So It Begins: Text Messages Push The Limits Of New Overdraft Regulations

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Consumers won a major victory last November when the Federal Reserve Board released rules about overdraft protection. The rules gave consumers an actual and long-overdue choice, requiring banks to solicit and receive a consumer's knowing assent before imposing the "courtesy" of this service. We strongly supported the new regulations, which set a new and clear standard for "opt-in" requirements, prohibiting banks from charging fees for a service most customers never asked for nor realized they were using until the unwelcome surprises appeared on their monthly statements. These fees added up to more than $38 billion last year and were charged primarily to those with low incomes.

With the ink barely dry on reform that still has a few months before it goes into effect, we're already seeing the first wave of industry tactics to undermine these protections. Recently, the New York Times ran a story about SoundBite Communications, a company marketing a "solution" to the new rules using text message opt-in solicitations to "help ensure business continuity." Text message communications make perfect sense in many contexts (like when an account balance is low), but they are not a legitimate approach to soliciting consumer consent for overdraft coverage.

The Federal Reserve and other consumer protection players must send clear signals now to stop this and other end-run tactics. Today, I sent a letter to SoundBite Communications issuing a warning that text message marketing strategies stretch the limits of the new federal regulations and I demanded a meeting to review and discuss their tactics. I've also sent an open letter to other companies offering opt-in solutions, warning them to follow the letter and spirit of the new law, making clear that New York City's Department of Consumer Affairs will investigate any companies promoting similar deceptive strategies soliciting our City's banking consumers.

I have also written to Federal Reserve Chairman Bernanke urging him to quickly and forcefully address abuses, as I hope others will, too.

Unscrupulous marketing tactics like text message solicitations also underscore the need for a strong, independent, federal agency with the primary mission and clear power to protect consumers in the financial services marketplace. The essence of consumer protection is enforcement of a fair marketplace, which is what Americans finally could expect with a Consumer Financial Protection Agency.