The Federal Reserve has proposed some new regulations that would, among other things, require banks to let you opt-out of the “overdraft protection” services that often result in consumers being charged large fees for buying one too many (or 6 too many) packs of gum with their debit cards. The Center for Responsible Lending thinks the programs should be “opt-in”. Either way, without the overdraft program, your debit or atm transaction would be denied for non-sufficient funds and you would not be charged a overdraft fee.
From the Proposed Rules:
Among other things, the proposal would require institutions to provide consumers the ability to opt out of their institutions’ payment of overdrafts. The Board is proposing to amend Regulation DD to ensure that consumers receive effective disclosures about their right to opt out of overdraft services, by setting forth certain content, format and timing requirements for the notice.
The Center For Responsible Lending argues (emphasis ours):
Given the low likelihood that people will unsubscribe, the default policy should place consumers in the arrangement that provides them with the greatest benefit, which is clearly not one that costs Americans more in fees than the amount of the loans themselves. In fact, with debit overdrafts, the cost averages twice the amount of the transaction, while the cost of being denied is zero. If consumers were warned they would be charged a $34 fee for buying a $2 donut, they might instead choose to hand the clerk a $5 bill – or skip the donut. The proposed rule would only be justified if consumers preferred to be enrolled in these overdraft programs and received real benefits from them. But evidence overwhelmingly shows that consumers don’t want overdraft loans and don’t benefit from them; thus, they should not be strapped with the burden of escaping this expensive trap.
The Federal Reserve has asked that consumers who are affected by overdraft programs submit their opinion of the proposed rules. If you’re interested in this issue, you can give the proposed rules a read (PDF) and then submit your comments to the Federal Reserve via email. To do so, place “Docket No. R-1315″ in the subject of your email, and send it to: regs.comments@federalreserve.gov
If you’d like more information from the Center For Responsible Lending, you can get it here: “Support Opt-In Requirement for Overdraft Fees” (PDF)
Proposed Rules, Truth in Savings (PDF)
(Photo: Morton Fox )
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@Bladefist:
“More people follow me then you. Maybe you could take a lesson from my book.”
Reasonable people also listen to Limbaugh. You have to keep an eye on the right-wing jerks to know what they’re up to.
@SMSDHubbard: Yes. That’s what I’m saying.
And do you know how many banks there are? Competition in the banking world is fierce. Every 6 months we the consumers get new free services, just to undercut the other banks. I don’t think we need regulation because of the number of banks out there.
It’s not greedy. The people over drawing are greedy. They are the one spending money they don’t have. Usually we call that stealing.
@Hobz: “The thing I don’t understand is why banks need to nickle and dime their customers on fees? My credit union doesn’t do this. “
Easy answer. A CU is owned by the depositors as its shareholders. Think of it as your lower/no fees as your per share annual “dividend”.
A Bank is either owned by “independent” shareholders or investors (or is privately held) and they EXPECT a return on investment.
ING uses the system of an interest-bearing loan for overdrafts, rather than a fee. However unlike banks with NSF fees, ING makes it pretty clear every step of the way what the policy is, how it works, etc. I’ve never had a bank disclose their NSF fees except in tiny print in the booklet they give you.
@Bladefist: You actually track that stuff? That’s pretty sad, bro. Really.
More Big Macs served than 1″ thick, home-BBQ’d burgers piled w/ homemade guac and a couple cases of iced, dark beer on a 100-degree summer afternoon. So McDonald’s is better, right?
Dittoheads marching in robotic lockstep fail to impress most.
Oh, how’s your Prez and his 99.5% Congressional caucus doing for our civil liberties? Thanks so much for that: AT&T sends their love.
@Bladefist: You, sir, have no idea what you’re talking about. It would be called stealing if we had the option to overdraw or not to overdraw. However, since there is no option, the bank is essentially forcing people to overdraw. I personally would prefer to be declined.
@Duffin: At some banks, there is an option.
@Bladefist: Well, I have yet to belong to a bank that does: Bank of America, National City, Fifth Third, Provident…Yes, I could join a Credit Union, but I have no idea how to even figure out which one to belong to and there’s no guarantee they would have an option either.
@Bladefist: I’m sure most banks do actually have the option to opt-out if you insist enough, but I would much prefer that they assume my choice is “no” rather than assuming it is “yes.”
You know who is most likely to overdraft? Kids/twenty-somethings who are just starting out with their bank account and, despite their parents’ best efforts, simply don’t think about keeping track of their balance (or simply don’t keep a close ENOUGH track of the balance). They don’t even know what an NSF fee is starting out, and they assume that, if the money runs out, they won’t be able to use the money.
The banks, on the other hand, assume that these kids are easy marks and NSF them for all they’re worth. Some learn from these experiences, some don’t, and the bank continues to exploit them. Generally the ones who don’t learn are the ones who get so many NSF fees that mommy and daddy have to bail them out. Overdraft protection is one of those sneaky, under-handed things that banks introduce to make it look like they’re protecting their customers, when they’re actually trying everything in their power to exploit them, and that’s simply bad business.
@Bladefist: If banks need to prey upon people over innocent mistakes in order to generate income, then perhaps they should reconsider their business model. I would be more than willing to give up free checking for a reputable bank that didn’t try to profit mainly off the people who don’t have money.
As for your argument about more regulations, it’s not exactly like they’re completely rewriting tax laws here. All they’re doing is changing how you choose whether or not to use a service. That’s essentially changing a check box.
I would personally prefer that they ban making any service “opt-out” outright. When was the last time anyone saw an opt-out service that the majority of people would want anyway?
“The Federal Reserve has proposed some new regulations that would, among other things, require banks to let you opt-out of the “overdraft protection” services…” We Have That Now. Although some banks don’t make it easy to opt-out of anything.
So, again in the bank’s favor – it’s okay if we automatically enroll you in a service that may generate lots of fees for us. Gee thanks, oh-so-not-helpful Fed Reserve idiots.
@Bladefist:
“It’s not greedy. The people over drawing are greedy. They are the one spending money they don’t have. Usually we call that stealing.”
I’ll refer you to my comment above.
@Trai_Dep: I am sorry you feel the need to be rude.
Not sure why you think I am a troll or that I am loving on commercial banks either. I guess if you have had troubles with spending habits in the past I can understand being bitter. It seems to me that you are more of a troll then myself. I am only pointing out the obvious.
Despite what people may think commercial banks know what they are doing and that includes both large and small institutions. They can nickle and dime you to death if you do not use common sense along with good spending habits. The whole goal for a commercial bank is to screw grandmothers (only an expression). They love to offer 1yr CDs to older people at wonderfully low rates and then take that money and loan it back out at a much higher rate. Its the nature of the beast and always has been.
My point is this is how banks make money. This is how they are able to offer free checking/$0 balance checking. The people who get NSF fees or overdraft fees or anything along those lines are the same people who have very low balances and this is how the bank profits off of them. Its simply a business model like any other.
For the record I have never had issues with a bank and have never had to pay a fee of any type. Its called common sense and good spending habits.
Oh and for the record Credit Unions are not banks and do not follow the same taxes and rules so therefore generally offer not only better service but better rates on both lending and investment.
@Norcross: Yes. I go to the bank to get money. That way I get to keep more of it. Apparently that’s the only way that works under the Fifth Third Immaculate Overdraft ™ regime.
@Bladefist:
I absolutely agree. But when corporations fail to do the “right thing”, I believe it’s necessary that they be forced to. Granted, there are many industries that don’t need oversight. But I must say banking isn’t one of them.
@linus: You know, I have a bank here in KC, MO, I pay nothing for checking, nothing for bill pay, I make interest, and I totally use them for everything. They making nothing off me. Nothing! I don’t do any of my loans through them. If they want to take $40 bux when I over draft, they deserve it! I’m already a cost to them, why should I be an even bigger cost?
If you have an over draft issue, most banks, on request, will let you opt out. We don’t need regulation. It’s already available. If you’re too lazy to fix your own problems, then you suck at life. Where am I wrong here?
If my account was always under 100 bux, I would call my bank and opt-out. If they said no, I would switch banks.
Finally!!! The day will be mine when I can kick the over draft BS out of my account!!!
It’s not that I don’t have money, or don’t know how to use/spend it. It’s just that I have one account that I use as my “play money” account and in that I put money in so I can buy stuff I don’t need but want. This works great except for when the bank takes an extra day to deposit my money from my savings into my checking and doesn’t tell me. So I go into the store thinking I have money in my account for that purchase when in fact it won’t be there till the next day!! If I tried to buy it and the purchase was rejected, I would say: “ooh okay, I’ll come back tomorrow” no harm done. But when I buy that item then check the account to find out it’s been hit with an overdraft, I get a little angry…
@Bladefist: I have no idea what bank you’re talking about. My current bank, National City, does NOT allow you to opt out. According to them, there isn’t even an option to set that up in their system. So why dont you inform the rest of us of these magical banks that let you do this?
@infecto: As for you, I flat out don’t believe you. Your whole life, you haven’t once had a bank fee. Right…anyone else believe that? I know you don’t care if we believe you or not: this is the internet afterall. I just wanted you to know how nearly impossible that statement is.
Heck yes, even an “opt-out” choice is preferable to a choice that doesn’t exist or count for anything. If anything, the Federal Reserve’s decision will bring this issue a little bit more noticeable than it is right now.
@linus: Couldn’t have said it better myself.
I too believe that free market / laissez faire policies should dominate until the businesses cannot be trusted to do the right thing anymore. In my opinion, businesses should achieve a good balance between serving the majority of its customers in a fair, equitable manner and earning its owners/operators a reasonable profit.
Banks are a special case though (and historically, they always were). Even though some banks are definitely better achieving that balance I just mentioned than others, the lack of regulations and the current banking system (through the fractional reserve system) that’s in place today just doesn’t mix and match.
Arguably, the recent subprime mortgage crisis is one of the nasty side effects if neither side gets checked for too long.
@infecto: Just so I have the analogy straight: you’re saying the battered wife deserves it (that skank!) and that Mr. Banks only hit the Misses with his Fists of Love. Got it. Thanks!
Ahem. The thing about this is few electronic transactions are spent for emergency situations. Having a credit/debit card being declined wouldn’t bother the majority of people – they’d probably just whip out another one (not ideal, but hardly a life-ender). It doesn’t make sense that banks wouldn’t prominently make it known that this option is available, and have it be opt-in. Unless it’s out of greed.
I’d have no problems with the banks offering this “service” if some rube agrees to it. Buyer beware, but hey, you make your own bed too. It’s just that the banks have to go the extra two-step to rip off the unwary. THAT annoys.
Ah, how I <3 my Credit Union, Overdraft protection is a line of credit to them. No NSF fee if you use it, but you do pay interest on the balance. However, I opted out of the credit line and just use my savings account and funnel enough money for groceries and gas into the checking account. Need more money? A 5 minute phone call can instantly shuffle money from one account to the other.
Last I knew here in the US, free enterprise and the right to “choose” many of our business affiliations (i.e. a bank/CU in your city or town, car-dealer, big-box store, etc) allowed even the “unwary” to enter into what may be preceived as a bad or slanted contract or deal, especially if the consumer opts not to ask consumer-based questions, read the disclosures, monitor their account, or at the least, shop wisely.
You are a consumer until you utilize a bank’s services. Then you become their customer. Once a customer, if you don’t like your partner, vote with your feet.
The thing I hate about the overdrafts is that they take the biggest amount first so they can charge you out the ass for the 10 small ones. I’d be happier if I had the option of syaing “take the small ones first, THEN the big one”. Another thought: What about an option from the bank that says if you opt-IN for the fees, they reduce them to like $20 or less? I’d stay in if they were lower.
@NoWin: We actually have a socialist and capitalist system here in the U.S.
Private industry is often unwilling to put in place certain safeguards for consumers, and when your much beloved deregulation leaves us with the majority of banks owned by less than a dozen financial institutions, choices for the consumer becomes very limited. This is when some rules are helpful. Believe it or not, you might have noticed that when left to its own devices, the banking industry tends to keep going bankrupt. This happens a few times every century in our country and the consequences are painful.
As people like you are wont to say, if you don’t like it, vote with your feet. Move away to another country.
I agree that opt-in or opt-out, just the OPTION to have this will be great!
I can’t believe this got by Bushco. I suspect they just don’t understand what it is the Reserve is doing.
..
@Norcross: I don’t get paid in cash. However, I am self-employed and go to the bank at least weekly to deposit payments from customers.
As far as making an argument for the minority – I wasn’t intending to. I really think the ability to “opt” that is key. I don’t see why changing the default should be that much of a problem for people.
@NoWin & Bladefist: I think that is the point. Free enterprise includes the right to choose. This is the right that the government wants to prevent the financial institutions from allowing us to exercise. Essentially, these offending financial institutions, probably most of them, are trying to obfuscate the situation and not allow us the right to CHOOSE.
Preserver this right, and do not allow private companies to take it away.
In this instance it is governemtn doing what it should to look out for and safeguarding the rights of its citizens.
@Bladefist: have a bank here in KC, MO, I pay nothing for checking, nothing for bill pay, I make interest, and I totally use them for everything. They making nothing off me. Nothing!
Of course they make money off of you. The interest they pay you is less than what they earn when they loan your money to Trai_Dep for his new double-wide. Once upon a time, banks like Wells Fargo made most of their money through such savings and loan schemes. But today, Wells Fargo pulls somewhere around 50% of their income from fees.
I’m staying neutral on whether or not the Fed should step in, but this table from the Federal Reserve is great:
See? Free overdraft protection is already available!
@Bladefist: And at many, there is not. What is the problem with giving everyone the option?
Too many banks give out the bs “most customers seem to like the protection” … at $35 a pop?
And yes thank you, I do consider myself intelligent and mature (as well as fair and balanced).
EVERYTHING should be “opt-in”. I will be sending the Federal Reserve one of those e-mails.
@Bladefist: Is there a more politically-oriented forum somewhere that you post on? I’ve got a lot to discuss with you, but nearly all of it is off-topic here, and I don’t want to spam up the comments.
I’ve been using the same overdraft protection plan, for years. Keep $1500 to $2000 in the account, that you don’t even show on your checking and deposit register. When you think you’re down to zero, you’ve actually still got 4 figures in there.
This assumes, of course, that you balance your checkbook. I’m continually amazed by all of the people who admit that they take the bank’s word for it…
@Michael Belisle: I coughed up my beer. that was hilarious. Love it.
I know the bank makes money off my money, I meant, I don’t directly pay them for anything. Although, either way I’m kind of right, because after i deposit my money there, I transfer 75% of it to savings accounts, stock accounts, money markets, etc. So really they make interest off a very small part. I just leave enough in there to pay bills
@RedSonSuperDave: well no, but I’m always up for a debate. We can figure it out in private in our user profiles. I only troll here
@doctor_cos: Well, I think competition will force it. Already there are many banks that let you opt out. I’m glad you are fair and balanced
HEY! I know a media outlet that is fair and balanced!
@Trai_Dep: Let me get this right you are trying to compare the banking system to physical abuse. I never acknowledged your flawed analogy before hand and still do not. Come again and please make some sense next time.
I can handle opt out in this case…. You only have one or two, even 10 banks. But its a finite number…
When it comes to spam, opt in is necessary because there is no limit to the number of times you would have to opt out.
Opt in is better, but I would rather opt out than fight this to the point that we get nothing at all.
At my bank you have this option on your debit card/checking account, sort of, it’s called a “Matrix Allowance.” That is the amount that, for instance, the debit card will let you overdraft your account (before it starts to deny your purchases). You can call to see what yours is and have it set to zero, although they don’t recommend it.
I know, I know, it’s because they want your overdraft fee money, but it also helps in an emergency situation. If you are out in the middle of nowhere and for some reason all you have is your debit card. Say you need gas but you don’t have enough funds and are willing to OD your account, with your matrix allowance at zero, you wouldn’t be able to.
They say it can take up to 24 hours to update changes, so a call to cust service at that point wouldn’t do you any good. Thus no matrix allowance to OD your account also means no gas.
The point is that you can set it to zero at certain banks so you don’t OD your account. Just be aware that you can still get charged for checks, a return item fee is different.
@Bladefist:
sometimes emergencies happen, and you need cash.
That’s what payday loan places are for. The bank isn’t going to let you overdraft more than 50-100 bucks and that will be in small increments.
Or write a hot check to the grocery store if you MUST but thinking that a little overdraft on your debit card is going to save the day is wishful thinking.
comment via email or at this web-form link:
[www.federalreserve.gov]
I’m way late to this thread – but thanks for this post. I’m dealing with a fraudulent charge on my visa check card that overdrew my account.
My bank has put the money (including overdraft fees) back into my account. But when I asked why they even approved the charge when I didn’t have the money, they said they had to. Nice to know that you can change that default.
Tell the Fed Reserve to ban shady bank overdraft practices ($17.5
billion/yr) >>> http://twurl.nl/js6ewv [ConsumerAction.com]