Fed Tackles Overdraft Fees « The Washington Independent
Customers will have to opt-in to overdraft protection programs before banks can charge them overdraft fees on debit purchases and ATM withdrawals, according to new finance rules rolled out by the Federal Reserve today. The move marks a sharp departure from current practice, in which many banks silently and automatically enroll their customers into overdraft programs, and charge large fees for each overdraft purchase.
“The final overdraft rules represent an important step forward in consumer protection,” Fed Chairman Ben Bernanke said in a statement. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
Threatened with congressional reform, some banks have already taken it upon themselves to operate more transparent overdraft protection programs. But the banking industry on the whole has opposed the idea, arguing that the overdraft protections benefit consumers by allowing them to make purchases even when accounts have run dry.
The industry has good reason to oppose the changes. Overdraft fees — which now top $30 apiece, on average — have evolved into a $38 billion-per-year money-making venture for the banks, according to Moebs Services, an Illinois-based financial research firm.
The Fed’s new rules take effect next summer.
Finance leaders in both chambers of Congress have introduced legislation to protect consumers from overdraft abuses. Aside from requiring customers to opt-in to the protection program, those bills also cap the number of overdraft fees allowed per year and prohibit banks from manipulating the chronology of purchases in order to maximize the number of overdraft fees — items the Fed’s new rules don’t address.
No word yet if the sponsors of those bills — Rep. Carolyn Maloney (D-N.Y.) and Sen. Chris Dodd (D-Conn.) — are satisfied with the Fed’s reforms or will keep pushing forward with their own, stronger consumer protections.