The Fed bans overdraft fees on ATM and debit-card transactions

[one...two...tree 2,762]

The rule, to take effect July 1, requires banks to get customers' OK for the fees, which have been a growing source of profit for banks. Those who decline will see transactions rejected.

By E. Scott Reckard

Flexing newfound muscle as consumer protector, the Federal Reserve today banned overdraft fees on automated teller machine and debit-card transactions unless consumers have actively opted for an overdraft protection service.

The new rules mean that banks will be required to get their customers' permission before charging fees when debit-card and ATM transactions trigger an overdraft. Customers who don't elect to have overdraft coverage will see their charges rejected if they put their bank accounts into the red.

Consumer advocates lauded the move as long overdue but said stronger measures contained in pending legislation introduced by Democrats were needed as well.

The Fed's rule, which takes effect July 1, does not cover fees for overdrawn checks or overdraft charges from recurring debit transactions, such as automatic payments for bills. The proposed laws would cover those transactions as well.

"The Fed should be applauded," said Lauren Bowne, staff attorney for Consumers Union, which had argued that the overdraft charges were really a form of high-interest loans. "Soon, banks will have to persuade their customers that these overdraft programs are beneficial compared to other lower-cost alternatives."

But other research and consumer groups were disappointed.

"We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering," said Eric Halperin, head of the Center for Responsible Lending's Washington office. "But this improvement is undermined by the Fed's failure to propose or enact necessary safeguards against a host of unfair practices."

Over the protests of consumer groups, service charges on bank-deposit accounts have been an increasing profit center for banks in recent years, totaling about $182 billion in the five years through 2008, according to the Federal Deposit Insurance Corp.

In the first six months this year, such fees raked in $21.5 billion, nearly as much as the $22.1 billion total for all of 1999, the FDIC tally shows.

Under former Chairman Alan Greenspan, the Federal Reserve had maintained a hands-off attitude toward regulations designed to protect consumers, with Greenspan arguing that free-market competition would work to benefit the public.

But current Chairman Ben Bernanke has adopted a more consumer-friendly stance following the Fed's failure to rein in mortgage lending, which is widely blamed for helping to create the global financial crisis, and the response in Congress, where some legislative proposals challenge the central bank's authority.

"The final overdraft rules represent an important step forward in consumer protection," Bernanke said.

The Fed's move toward consumer protection comes as the Obama administration is trying to strip the agency and three other bank regulators of such powers and place them with a new Consumer Financial Protection Agency.

The Fed's mission, originally defined as promoting full employment and maintaining price stability, was expanded to consumer protection in the 1960s when Congress tapped it to oversee enforcement of the landmark Truth in Lending Act.

The central bank was further given the authority to write rules governing home lending in 1994 but never did so until last year, after the collapse of the mortgage and housing markets had occurred.

"Their failure to act to rein in mortgage lending ultimately triggered the collapse of the economy," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has introduced legislation limiting bank overdraft fees, and Rep. Carolyn Maloney (D-N.Y.) has introduced a similar bill in the House.

Advocacy groups say consumers would rather have a debit-card transaction denied than pay substantial overdraft fees. According to the Center for Responsible Lending, the average shortfall is $17 for an overdraft triggered by a debit-card transaction -- and the fees for covering the transaction can cost twice as much.

The group also contends that most banks manipulate their debit-clearing systems so that high-dollar transactions are debited first each day, which also can drive up fees.

http://www.latimes.com/business/la-fi-bank...,0,290841.story

[Chica Yeyé 41]

[mawilson 2,133]

The rule, to take effect July 1, requires banks to get customers' OK for the fees, which have been a growing source of profit for banks. Those who decline will see transactions rejected.

ATMs already ask you "is it OK / do you want to proceed / etc".

How does this help us?

Never mind... overdraft fees. I thought they were talking about ATM fees.

[Otto 83]

The rule, to take effect July 1, requires banks to get customers' OK for the fees, which have been a growing source of profit for banks. Those who decline will see transactions rejected.

ATMs already ask you "is it OK / do you want to proceed / etc".

How does this help us?

Never mind... overdraft fees. I thought they were talking about ATM fees.

It can help you if the account you're using is low onf funds; what banks do now when you're (say) buying groceries is they'll accept the charge even if it does take you into overdraft because they'll collect a (rather large) fee usually; so that gallon of milk could end up costing you $28 vs $3 (for example) and you're none the wiser until later (and it's too late).

[Kevin and 10]

Another thing they do is process the largest transaction/withdrawal first for that day. That way they hit you for more over draft charges, even though you may actually have only one.

[one...two...tree 2,762]

Another thing they do is process the largest transaction/withdrawal first for that day. That way they hit you for more over draft charges, even though you may actually have only one.

Yep. That's all going to end now.

[Mags 112]

Another thing they do is process the largest transaction/withdrawal first for that day. That way they hit you for more over draft charges, even though you may actually have only one.

Not all banks. The one I work for processes deposits first, regardless of the amounts.

Edited November 12, 2009 by Persephone

[Joseph & Ana 0]

Does anyone know if this also applies to credit unions?

[The_Dude 1,142]

Does anyone know if this also applies to credit unions?

I imagine it would apply to any institution subject to federal regulation.

[Joseph & Ana 0]

Does anyone know if this also applies to credit unions?

I imagine it would apply to any institution subject to federal regulation.

Well, CU's advertise that they are privately owned and "different" than banks, so I wasn't sure how that worked.

[The_Dude 1,142]

Does anyone know if this also applies to credit unions?

I imagine it would apply to any institution subject to federal regulation.

Well, CU's advertise that they are privately owned and "different" than banks, so I wasn't sure how that worked.

Credit unions are different from banks because those that deposit there are in fact the owners as well. Most credit unions determine their rates and services from a board elected from the members. Credit unions can be either a federal charter or a state charter. It really depends upon your individual credit union. I'm not sure, but I would wager that they will indeed be subject to these changes.

Edited November 12, 2009 by Rob and Mel

[Aubrey 10]

Where is the applause smiley when I need it?

[one...two...tree 2,762]

Where is the applause smiley when I need it?

You mean this one?

[Nizzy 1]

what alot of people do not know and what banks do not disclose is that this option already exists. When I was working for a bank there were about one or two clients who requested for us to not allow them overdraw their account. We were told not to tell people that they have that option. The bank tried to brainwash us by telling them that it would be so embarrassing for them to be at the checkout line and have their card rejected but I NEVER repeated that bullsh!t. After working for a bank I am so thoroughly disgusted by all banks and will never look at them the same way again...

One more thing: if you can get yourself into a credit union, then go for it. They might not have many locations and they might not be open on the weekends but you are getting better service.

Edited November 13, 2009 by Nizzy

[Gary and Alla 3,694]

The rule, to take effect July 1, requires banks to get customers' OK for the fees, which have been a growing source of profit for banks. Those who decline will see transactions rejected.

By E. Scott Reckard

Flexing newfound muscle as consumer protector, the Federal Reserve today banned overdraft fees on automated teller machine and debit-card transactions unless consumers have actively opted for an overdraft protection service.

The new rules mean that banks will be required to get their customers' permission before charging fees when debit-card and ATM transactions trigger an overdraft. Customers who don't elect to have overdraft coverage will see their charges rejected if they put their bank accounts into the red.

Consumer advocates lauded the move as long overdue but said stronger measures contained in pending legislation introduced by Democrats were needed as well.

The Fed's rule, which takes effect July 1, does not cover fees for overdrawn checks or overdraft charges from recurring debit transactions, such as automatic payments for bills. The proposed laws would cover those transactions as well.

"The Fed should be applauded," said Lauren Bowne, staff attorney for Consumers Union, which had argued that the overdraft charges were really a form of high-interest loans. "Soon, banks will have to persuade their customers that these overdraft programs are beneficial compared to other lower-cost alternatives."

But other research and consumer groups were disappointed.

"We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering," said Eric Halperin, head of the Center for Responsible Lending's Washington office. "But this improvement is undermined by the Fed's failure to propose or enact necessary safeguards against a host of unfair practices."

Over the protests of consumer groups, service charges on bank-deposit accounts have been an increasing profit center for banks in recent years, totaling about $182 billion in the five years through 2008, according to the Federal Deposit Insurance Corp.

In the first six months this year, such fees raked in $21.5 billion, nearly as much as the $22.1 billion total for all of 1999, the FDIC tally shows.

Under former Chairman Alan Greenspan, the Federal Reserve had maintained a hands-off attitude toward regulations designed to protect consumers, with Greenspan arguing that free-market competition would work to benefit the public.

But current Chairman Ben Bernanke has adopted a more consumer-friendly stance following the Fed's failure to rein in mortgage lending, which is widely blamed for helping to create the global financial crisis, and the response in Congress, where some legislative proposals challenge the central bank's authority.

"The final overdraft rules represent an important step forward in consumer protection," Bernanke said.

The Fed's move toward consumer protection comes as the Obama administration is trying to strip the agency and three other bank regulators of such powers and place them with a new Consumer Financial Protection Agency.

The Fed's mission, originally defined as promoting full employment and maintaining price stability, was expanded to consumer protection in the 1960s when Congress tapped it to oversee enforcement of the landmark Truth in Lending Act.

The central bank was further given the authority to write rules governing home lending in 1994 but never did so until last year, after the collapse of the mortgage and housing markets had occurred.

"Their failure to act to rein in mortgage lending ultimately triggered the collapse of the economy," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group.

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has introduced legislation limiting bank overdraft fees, and Rep. Carolyn Maloney (D-N.Y.) has introduced a similar bill in the House.

Advocacy groups say consumers would rather have a debit-card transaction denied than pay substantial overdraft fees. According to the Center for Responsible Lending, the average shortfall is $17 for an overdraft triggered by a debit-card transaction -- and the fees for covering the transaction can cost twice as much.

The group also contends that most banks manipulate their debit-clearing systems so that high-dollar transactions are debited first each day, which also can drive up fees.

http://www.latimes.com/business/la-fi-bank...,0,290841.story

I hate overdraft fees. I hate them so much I have never paid one! Never! I will not give the bastards the pleasure! I do so by not overdrawing my account! I take total pride and joy in my "free checking for life" account and intend for it never to cost me a penny.

While I do not have a problem with informing people as this regulation does. and giving them options. But here is what will happen, and you know it. Brain dead low-life, mouth breathiing dregs will voluntarily sign up for overdraft protection and then cry about it when they get charged..just like most of them do now. This didn't really fix anything, but yes, I agree if you do not have the money the transaction should be denied. But people will whine to their congressmen either way and congress, or the Fed, or whoever will ride to their resuce again. But you cannot rescue people from themselves. Only people can rescue themselves.