August 12, 2010
WASHINGTON, D.C. — Under new “opt-in” overdraft rules that go into effect on Sunday, banks will have to get consent from their customers in order to charge fees for debit and ATM overdrafts. The new Federal Reserve rule will provide additional consumer protections, says Consumers Union, the nonprofit publisher of Consumer Reports magazine.
“The days of the $2 cup of coffee that winds up costing you $39 are now over,” said Pam Banks, Senior Policy Counsel for Consumers Union. “This new rule puts the power back in consumers’ pocket books. It means, unless you ask for overdraft protection, your card will be denied if you don’t have enough money. Now your latte may still be expensive, but it won’t end up costing you the price of a pair of shoes.”
Under the new “opt-in” rule, which goes into effect on August 15, banks will no longer allow ATM or debit charges to go through if there is not enough money in the account and the consumer hasn’t given the bank permission. However, if a consumer opts in to overdraft loan programs, the bank will still be able to assess a high fee, which averages $39 per overdraft.
“These new rules mean consumers will finally have control over whether they are enrolled in expensive overdraft loan programs. Your bank can no longer charge you a fee for spending more than you have with your debit card unless you give them permission to allow debit overdrafts,” said Lauren Bowne, Staff Attorney with Consumers Union.
Consumers Union noted that there are cheaper alternatives for consumers who want to allow overdrafts on their debit cards. Most banks allow customers to link checking accounts to a savings account, credit card, or a line of credit. When an overdraft occurs, the bank will automatically transfer money to cover the transaction from the linked account. The FDIC has concluded that the fees assessed for these other types of programs are significantly lower than for automatic overdraft loan programs.
While the opt-in rule provides important protections for consumers, those who do opt for overdraft loan programs may find there are still opportunities for banks to make mischief. A federal judge in California recently ruled that Wells Fargo gouged consumers by manipulating the order in which it processed transactions, which triggered more overdrafts and generated more fees.
Consumers Union had urged the Federal Reserve to address this unfair practice when it was developing the new overdraft regulations but the agency chose not to do so. The consumer group supports legislation introduced in the House and Senate that would prohibit banks from manipulating the processing of transactions to increase overdrafts and provide consumers with additional protections against unfair overdraft policies.
David Butler or Kristina Edmunson – 202-462-6262 or Michael McCauley – 415-431-6747