Bank on This: New Rules on Overdraft Fees Issued

One change in overdraft fees and bank regulation in favor of consumers down, and about 100 still to go. The Federal Reserve announced last Thursday that new rules concerning overdraft protection charges plaguing consumers' bank balances are set to go into mandatory effect for new cards on July, 1, 2010.

As discussed in previous Common Law posts, consumers have numerous concerns with overdraft. Some of those we've previously addressed include:

• processing order (banks often do the largest transaction first, rather than in chronological order),
• getting signed up for overdraft "protection" perhaps without even knowing it,
• not having an opportunity to back out of a transaction if it puts the balance, in negative territory,
• having no, or high daily or yearly limits on overdraft fees levied, and
• having fees that are disproportionate to the amount overdrawn.

The Fed has chosen this time around to address one of the above issues frustrating bank customers. As of July next year (August 15 for existing accounts), consumers will have the right to receive clear information about and the opportunity to opt out of OD services and related charges pertaining to check card transactions at retailers and ATM's only.

As reported by the New York Times, it seems that consumers are simply not as upset about the overdraft fees on paper checks or on re-occurring scheduled withdrawals (such as monthly phone bills), so they are exempt from this rule.

Under the new rules, consumers will have an opportunity decline overdraft protection for ATM and check card transactions. Banks will be then prohibited from "discriminating" (that is trying to make up the loss with added fees elsewhere) against customers who do choose to opt out. Customers will also have the option of revoking their consent to the service. 

The banks, of course, are predicting doom and gloom and a loss to the customer-beloved institution of overdraft protection due to all the losses that they argue mostly smaller banks will incur under the new rules (though big banks will surely miss some of the billions they've been reaping off overdraft fees).

Still up for future consideration is legislation introduced by Senators Christopher Dodd and Charles Schumer to limit the number of overdraft fees to one a month and to require a bank to seek permission from consumers to cover debit card and check purchases that would push their bank balance below zero.

Unfortunately, the Fed did not yet address other troubling bank practices such as processing a larger transaction ahead of smaller ones which could push a customer into the red, thus triggering overdraft protection and those pesky fees.  Maybe next time.

Related Resources:

• Overdraft Fee Reform: 5 Terms to Watch (FindLaw's Common Law)
• Overdraft Fee Bonanza (FindLaw's Common Law)
• New Rules Restrict Overdraft Fees on Cards (NY Times)