Starting July 1, 2010 Overdraft Fees Will Require Consumer Consent

The Federal Reserve has announced a new rule requiring overdraft fees on one-time debit card transactions and ATM withdrawals to be “opt-in.” The new rule will take effect July 1, 2010. “The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke in a prepared statement. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”

Here’s the full press release from the Fed:

The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.

“The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”

The Board’s consumer testing shows that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they affirmatively consent, or opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.

To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers who do not opt in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in. For consumers who do not opt in, the institution would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions.

“Overdraft fees can be costly,” said Governor Elizabeth A. Duke, the chair of the Board’s Committee on Consumer and Community Affairs. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”

The Fed says that most consumers want overdraft protection on checks and regular electronic bill payments, so those types of payments are excluded form the new opt-in rule.

Federal Reserve announces final rules prohibiting institutions from charging fees for overdrafts on ATM and one-time debit card transactions [Federal Reserve]
(Photo:Johnny Vulkan)

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  1. bornonbord says:

    Well… There goes my free checking account….

    • Cant_stop_the_rock says:

      @bornonbord:

      Probably. Without poor, financially inept people to subsidize our accounts, we might have to start paying for them. :(

      • Tim says:

        @Cant_stop_the_rock: Another way to say this: without one of the main dishonest ways banks make money, they’ll have to find an honest one.

        Like … investing their deposits, or something crazy like that.

        • Cant_stop_the_rock says:

          @TCama:

          Dishonest? You mean banks hide the fact that you will be charged a fee if your account balance drops below $0?

          • Tzepish says:

            @Cant_stop_the_rock: Dishonest. Like applying multiple charges in the precise order that would generate the most overdraft fees. If I have $20 in my account and I apply a $10, a $5, and a $25 charge (in that order), then I’ve overdrafted three times.

          • perfectoon_0901 says:

            @Cant_stop_the_rock: Dishonest. Like opting out of overdraft protection, and 2 months later being put back on overdraft protection without my knowledge or consent.

        • uncle moe says:

          @TCama: seems to me that if an institution is holding your money, providing you access to it in a fairly easy manner, and not charging you for this service, if you spend more money than you have, you are the dishonest one. or just stupid. your choice.

          • Amish Undercover says:

            @uncle moe: There is the issue with debit cards when a store might accidentally charge you ten times. Then you must fight tooth and nail to get your money back. Neither the bank nor the store will necessarily volunteer to help out since they both profit off of the error. Meanwhile you are left without any money.

            Banks also order your overdraft charges to optimize their profits, arguing them doing so was a service when they knew full well that they were/are the only ones benefiting. The unicorn of overdraft charges: after all those big charges go through, a small charge of $10 or less is refused because the overdraft protection ran out. (I am skeptical any bank has ever refused to make $30 by lending out $10. They order the charges purely for profit and then lie to say they are doing it for the customer.)

            When banks lie or evade responsibility for errors, the options are limited. Since we cannot legally toss them in jail, I find regulation completely acceptable.

          • TheFingerOfGod says:

            @uncle moe: except this is not altruism. Banks make billions of dollars in overnight markets (to name one example). This is not altruistic behavior on their part.

            What you cite is part of their business model so I would not say that the consumer is being dishonest in the least. Now I would agree 1000% that a consumer should be charged for overdrawing their account. I even agree that many people (though no fault or complete fault of their own) help banks siphon off their money. The whole “life is tough” argument that I have seen on here, while I understand and am in complete sympathy with, should not shield people from the consequences of not having enough money in their account to cover the draws on said account. That said. . . some of the practices are just plan dishonest. I and others have cited just one. Namely, the practice of reordering items that come into your account so that they can maximize their profits. DISHONEST! Another example, the dissembling that goes one when industry lobbyists claim that this is a “service” to the customer. DISHONEST! Shall I go on???

            • uncle moe says:

              @TheFingerOfGod: you missed where i said this: what you speak of is an abuse of the system and i would certainly agree that regulation and oversight of these practices is a good thing.

              and i’ll say this again: 99% of the time it’s your own fucking fault if you spend more than you have.

      • ARP says:

        @Cant_stop_the_rock: Yes, but Banks and the Street have gotten used to double digit growth and handsome profits, and so don’t expect them to manage expectations anytime soon. Minimum balances are returning and so the same people will pay the fees (the irresponsible or those living hand to mouth). It will also drive people to check cashing places as their “bank” since they may not be able to meet the $1500 minimum.

        Go Go Credit Unions.

      • eccsame says:

        @Cant_stop_the_rock: It’s just raising the bar for fiscal responsibility. Most banks will still have free checking, they’ll just require a minimum balance of $1,000 or something. So, you shouldn’t worry. Unless, of course, your one of those people who is unable to manage their finances well enough to keep a minimum balance.

        • Cant_stop_the_rock says:

          @eccsame:

          Haha… no, I don’t have to worry – thanks for the concern though.

        • morlo says:

          @eccsame: 1000 min balance is equivalent to $5/month fee since you are probably not getting any interest. Luckily fiscally responsible people like are heavily invested in whole life insurance policies!

          • rjhancock says:

            @morlo: whole life is not an investment. If someone was truly fiscally responsible, they wouldn’t put there money in such a horrible place. Especially since the average rate of return for hte first 3 years is around -100%, first 10 is about 0%, first 20-30 is around 2-3%.

            If you consider losing money a wise investment, well, I have a bridge in Alaska I’d like to sell you.

        • mizike says:

          @eccsame: On the contrary, I manage my finances well enough to keep the smallest balance possible in my non-interest bearing chequing account. Every extra dollar in my chequing account is a dollar that could be making me money elsewhere.

        • temporaryerror says:

          @eccsame:
          It’s not always a matter of simply managing your finances. People have crappy jobs, people have no jobs. Sometimes you can be as frugal as possible and watch your finances with an eagle’s eye and STILL not maintain a 1000 minimum balance, or you may have an emergency that drops you below that $1000 line. Shit happens.

        • HogwartsAlum says:

          @eccsame: HA! I wish I made enough money to keep a $1000 minimum balance.

          I’ll have to put my money in coffee cans in the damn backyard.

  2. LostAtoll says:

    so, does this mean that I’ll be able to get a checking account that will reject debit card purchases if there isn’t enough money in my account?

    that’s all I want.

    • Loias supports harsher punishments against corporations says:

      @LostAtoll: I always thought that was the whole point of the debit card: it forced you to not be able to spend more than you had in your account. So I sure hope you’re right!

      • craptastico says:

        @Loias: that was the point until banks found a more lucrative way to operate them. why turn down a purchase, when they can collect $30-$40 in fees?

        • dragonfire81 says:

          @craptastico: That’s a nice looking hammer you got there, cause you just hit the nail on the head.

        • friday3 says:

          @craptastico: Especially on a $4 item. I recently had 8 items clear in a day. They took out the money in order of highest value to lowest. I also had a direct deposit made that day. The order of posting was the highest value to lowest, THEN the deposit. This caused nearly $300 in “over draft fees. I went to the ban and asked why they did not process in the order received or batch process as a whole days transactions, and she said “we do it this way as a customer convenience”. She said people prefer their higher value transactions to clear first because they are usually rent, mortgages or car payments. She even managed to keep a straight face when she said it.

      • Farleyboy007 says:

        @Loias:
        Well, that’s what all consumers think a debit card is. However, it’s more like a charge card with outrageous fees if you don’t keep a buffer balance. I recently got nailed (yesterday) when my “balance” technically didn’t go below 0 (well, 4 cents below but whatever). My “Available Balance” however was below 0 due to some pending charges. I shunted some cash over to cover these pending charges, but it was too late. Not only did i get 3 overdraft charges for what i bought while the charges were pending, i got hit for those pending charges too. Even though my actual balance only dipped below 0 by 4 cents (not including the od fees). what a world! the customer service rep was nice enough to refund 1 of the 4 charges though… lucky me.

  3. theblackdog says:

    So before June 30, they’ll introduce some “new super ultra deluxe checking account” that allows the option to opt-in or not. Then a few months later they’ll tell all their current customers who haven’t moved to the new account that they must move it or find another bank.

    • humphrmi says:

      @theblackdog_FeelingRandom:

      To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers who do not opt in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in.

  4. justagigilo85 says:

    About a year ago, I set up my checking account and credit cards (all with chase) so that if I were to “overdraft”, the transaction would be declined. The CSR was kind enough to tell me that if I did need to go over in the event of an emergency, I could call back and they could temporarily allow the transaction to go through (with an overdraft, of course).

  5. GreatWhiteNorth says:

    Tired of being bent over by the big banks without so much as a kiss or flowers informed consumers start the migration to financial institutions that care about them as customers… Credit Unions to the Rescue…

    • bloggerX says:

      @GreatWhiteNorth: The credit union I was with offered an opt-in or out choice. I thought everybody did this?

      • dragonfire81 says:

        @bloggerX: Not mine, no opt out offered. I even got screwed on an overdraft fee once. A charge suspiciously went through before two sizable deposits I’d made a day earlier than said charge was made. They were good about crediting my fee back though when I made a fuss about it.

        • bloggerX says:

          @dragonfire81: Mine charged me $400 in fees when I had $600 sitting in my savings account. The “overdraft protection” didn’t work, the “overdraft administrator” didn’t notice it. It was her job to notice stuff like that. After I raised hell to get my money back, I left them faster than a New York minute.

    • JollyRogargh says:

      @GreatWhiteNorth:
      I opened an account with a local credit union after WaMU got gobbled up by Chase. They charged me $5.00 to pick my own PIN # for my debit card. They charg me .50 cents for every check written over 5 checks per month. They also charge me $25.00 if I don’t use my Debit card enough. There are more fees… too many to list without sounding like I am lying.

      Needless to say, I am seriously considering switching back to Chase.

  6. Burning pakalolo not even noticing the weather says:

    Ok, dumb question….can someone clarify “one-time debit card transactions” for me?

    • larrymac thinks testing should have occurred says:

      @Burning pakalolo not even noticing the weather: My guess is that’s where the loophole lies. If you swipe your debit card at the Kwik-E-Mart for a Slushie and there’s not enough in your account you get denied.

      But, if you (are foolish enough to) have automatic recurring payments tied to your debit card, the banks will probably still be able to order a day’s transactions to screw you as hard as they like.

    • XTC46 says:

      @Burning pakalolo not even noticing the weather: non-reoccuring transactions. So you go to a store, slide your card, and you dont have enough money, so it rejects it. But if you have auto bill parment on your account, and the electirc bill is due, it will still pay the bill. Or if you write a check, it wont bounce.

  7. whysthsncnsmrst says:

    Balancing your checkbook is now opt-out I see.

    • DoubleEcho says:

      @whysthsncnsmrst: Hard to blame people when some banks take a week or more to apply even a cash deposit. It’s CASH for crying out loud, it doesn’t need to be verified with anything other than the counterfeit pen if need be. Payroll checks can take 3-5 days at some banks too. You can balance all you want, but you’re at the mercy of their fuzzy math and slow processing.

  8. larrymac thinks testing should have occurred says:

    The headline could be clearer; as noted in the press release, this only applies to ATM and “one-time debit transactions.” (henceforth to be known as OTDTs.)

    You can still get hit with an overdraft fee if a check or recurring debit comes in when you don’t have enough money in the account. As described in the full bulletin, this can possibly be useful to a consumer – if a bank pays an overdraft of this type, the consumer is less likely to be hit with a returned item charge from a merchant.

  9. soundreasoning says:

    Wow July 1, 2010 huh? Two-plus whole profit quarters away. Try not to give banks too much time to adjust/find a loop hole.

    • NeverLetMeDown says:

      @soundreasoning:

      Well, they do need time to contact all their customers and give them a chance to opt in, otherwise, people are going to be yelling and screaming about how their overdraft was just turned off without them having any say in the matter. Six months doesn’t seem that unreasonable to me.

  10. oneandone says:

    My comment worked! I wrote in favor of opt-in. OTOH, they received about 20,700 comment letters, so I’m not sure how influential my one comment was.

    No real surprises in the comments received. The text of the rule notice breaks it down:
    - Of the 20,700 comments, about 16,000 were form letters
    - “The majority of the comment letters were submitted by individual consumers.”
    - Consumers, consumer advocates, other agencies & Congress were in favor of the opt-in. “These commenters argued that the harm to consumers from overdraft fees outweigh any benefits.”
    - Industry wanted opt-out: “These commenters maintained that an opt-out regime would more effectively provide consumers the benefits of overdraft services while causing fewer disruptions to consumers and other participants in the banking system.” (my own emphasis. I wonder who those other participants are?)
    - This is interesting: “Further, [industry] commenters argued that any opt-in requirement should apply only to new accounts.”

    Full rule text: [www.federalreserve.gov]

    It’s not in regulations.gov yet, but when it pops up, it’ll be docket R-1343 (in case you want to read the comments/other materials directly).

    • tape says:

      @oneandone: what “other participants in the banking system” are there, beside the banks and their customers?

      I’m trying to figure out how the hell to fit a third party into that, and I can’t.

      • oneandone says:

        @tape: Maybe merchants? Just guessing.

        I interpreted it in a cynical way – that the banks want more predictability & fewer disruptions for themselves. That actually comes out a little more clearly in some of the comment summaries – the banks just want it to be a no-brainer process (that, somehow, just by coincidence, also makes them millions of dollars). But it’s all about ease of accounting, right?

        The ‘opt-in only for new accounts’ thing boggles my mind. Glad that didn’t happen.

  11. coan_net says:

    My bank never lets me overdraft it…. of course my bank is my wallet. If money is in there, I can spend it. If it is not in there, I can’t spend it.

  12. smartmuffin says:

    “I’m from the federal government and I’m here to help”

    In all seriousness though, this probably won’t change much. When you go to create the account, the person explaining the option to you isn’t going to be a consumerist blogger, it’s going to be a bank representative who is sure to tell you that overdraft protection is a great thing because without it, you might not be able to pay the light bill if you run out of money!

    My guess is that most of the readership of this site will choose to avoid it, and the other 99.999% of the world will opt in, because any salesman worth two cents will be able to easily convince someone what a great deal it is.

    • iron_chef says:

      “I’m from the federal government and I’m here to help”

      Well about frickin time!

    • Naame says:

      @smartmuffin: You could be correct, but information spreads from the point of being exclusive knowledge to that of being common knowledge much more quickly these days that it used to.

      People of all ages are using the internet more and that’s why. I imagine this sort of news will be finding its way to social networking sites, e-mails, popular blogs, and other various news sites very quickly if it hasn’t spread already. By the time July 2010 rolls around plenty of people will be aware one way or another.

  13. doctor_cos wants you to remain calm says:

    Nooooooooo, banks will just bury the opt-in into their new 15 page ‘terms of service’ agreement (printed in 6 pt helvetica) that you’ll have to click or sign sometime between now and next July.

    I would bet money on that.

  14. sonneillon says:

    I have several accounts so if my free checking account gets mucked up I will just use my credit unions free checking account.

  15. Scatter says:

    What I don’t understand is why my debit card can’t be linked to both my checking and saving account. If for some reason my checking account didn’t have enough funds to cover a charge the funds would be withdrawn from my saving account rather than having the bank loan me the money for a $30 fee.

    • chocolate1234 says:

      @Scatter: Most banks can link your accounts. Often you’ll still be charged a fee, but it’s much less than a regular overdraft. It’s weird that yours can’t.

    • webweazel says:

      @Scatter: Yeah, I had something like this years ago, I think with BOA.

      My savings account was linked to my checking. If it went negative, they would transfer over in $50 (or $100, I can’t remember) increments to cover the amount. The fee was $10 each time it happened. Still a deterrent not to overdraw, but not a crippling $40 fee like these.

      As far as I know, they still do it. Perhaps not at a tiny local bank, but any of the bigger ones should do it. Or maybe the clerk at your bank was told to say that it couldn’t be done, hoping to maximize their fees in the future? hmmmmmmm.

    • NYGuy1976 says:

      @Scatter: Visa and Matercard do not work that way. You can have only 1 primary account used for credit or debit.

  16. StarVapor says:

    Believe it or not…I remember a time when banks were here to serve us…not for us to serve them.
    That all ended sometime back in the mid 70′s when you suddenly couldn’t have a bank account anymore unless you gave them your social security number, which had previously been something only needed between your employer, Social Security and the IRS… Banking has been going downhill for the populace ever since then.
    Thomas Jefferson was prophetic when he noted that “Banking establishments are more dangerous than standing armies.”

  17. P_Smith says:

    How many of these pricks will send out a notice, then say, “Spending more than what’s in your account is opting in!” then put you on it automatically? Even if you put it in writing that you don’t want this?

  18. calchip says:

    Bank of America and probably others will go bankrupt with this new law. A substantial portion of BofA’s profits last quarter were from these sorts of bogus fees.

    Oh, and they have had opt-out for years, but they do everything possible to deny it exists, and in my case, they seem to randomly turn it off every so often and then claim “they have no idea” why it could have been turned off.

    Honestly, I think it would be the best possible thing to see BofA die a painful death and go completely away.

  19. Osi says:

    Too bad this is for banks only and not federal credit unions.

  20. Marshfield says:

    The thing that frosts my cookies is how ingenuous the banks are about what they’ve been doing up to now. When I accidentally overdraw my balance a dollar and get hit with a 35.00 fee, or two and then complain they say “well we didn’t want to embarass you” — even though if I was to go Best Buy and pick up a 50″ plasma, they would have no qualms embarassing me. The technology has always been there, and they have refused to use it when customers request it. Now their “chickens have come home to roost.’ Finally, I think someone in the Government actually did something useful.

  21. TitaniuIVI says:

    I’ve only been hit with an overdraft fee once. When I realized that my bank was going to be a dick, then I just stopped using my debit card for purchases. I only use my Amex for purchases, then I pay for it from my bank account. Extra plus is that I get points for my Amex purchases. Only time I use my debit card now is to get cash at an ATM, and I always check my balance before hand. It also help not to be riding the bottom of the barrel too. I usually keep at least $100 in my bank account just in case.

  22. KnightoftheVoid says:

    I work in a credit union, and in order to open a checking account, someone would first open a savings account to become a member of our credit union. As savings is not a transaction account, you are only offered 3 withdrawals from it per month without a fee. Unless a member opts out of overdraft protection when their account is opened, it is always set up as part of the opening process. However, apart from excessive withdraws from savings (more than 3 per month), there is no fee charged for overdraft TRANSFERS from your savings account. Even in the event of an overdraft transfer past the third, the excessive withdrawal fee ($3) is minimal compared to an NSF charge or Courtesy Payment fee.

  23. Amish Undercover says:

    @Cant_stop_the_rock: On the contrary they claim they’re doing it for your benefit!

    Your own words imply they are not being honest. It appears you are just trolling…

  24. TheFingerOfGod says:

    @Cant_stop_the_rock:

    What is dishonest is that some have been caught processing checks in a way that increases the overdraft fees regardless of the actual order the checks hit your account. Just because they do disclose this fact does not make it dishonest.

    dis•hon•est |disˈänist|
    adjective
    behaving or prone to behave in an untrustworthy or fraudulent way : “he was a dishonest hypocrite prepared to exploit his family.”

    • intended to mislead or cheat : he gave the editor a dishonest account of events.

    DERIVATIVES

    dishonestly adverb

    ORIGIN late Middle English (in the sense [dishonorable, unchaste] ): from Old French deshoneste, Latin dehonestus.

  25. AngryK9 says:

    @Cant_stop_the_rock: @eccsame: Yes, because every single person that can’t maintain a minimum balance of $1000 is a total loser that can’t manage their finances.

    Or, maybe there might actually be people out there who live paycheck to paycheck and are lucky to have enough money for gas to get back and forth to work after paying for their food, shelter, transportation, and other basic necessities required to sustain a life that doesn’t leave them living in a cardboard box in a back alley.

  26. Hogan1 says:

    @nstonep:

    If you think it’s difficult to keep track of your money with all the technology nowadays perhaps you should just go back to using cash only…

    It’s really not that hard to keep track of your money, unfortunately there’s a huge number of people that lack the common sense and basic math skills to do so.

  27. PunditGuy says:

    @idip: All those people have to do is ask, and poof — the ability to charge more than you have in your account is restored.

  28. LostAtoll says:

    @idip: so you decided it would be easier to pay for anything they try to buy with their card as long as you bend them over and take a 1000% short term loan. That makes it ok? because the people that have to watch their balance the most could use a good rogering every so often right?

  29. chocolate1234 says:

    @idip: Agreed. It really does happen all the time. Don’t get me wrong, I am glad they’re doing the opt-in, but I can guarantee I will be fielding a lot of angry calls in the weeks following the change from customers who are angry their purchases were declined.

  30. Tim says:

    @PunditGuy: Nope. My former bank literally didn’t allow you to decline overdraft “protection.”

  31. uncle moe says:

    @Rectilinear Propagation: that type of scenario is not at all what is in question here.

    @statgrad: what you speak of is an abuse of the system and i would certainly agree that regulation and oversight of these practices is a good thing. i never said it wasn’t. in the case of bank error, yes, there should be a way to easily rectify the situation.

    in the comment you both responded to, my thinking is that most cases of overdraft is completely avoidable by being aware of your available funds and working within your own monetary limitations. you know when you open the account that you will be fined for spending more than you have. no excuses.

  32. PunditGuy says:

    @TCama: I don’t know what you’re referring to. My comment was about the opposite situation, and concerns the world after this law takes effect.

  33. jamar0303 says:

    @Farleyboy007: That’s why I love living and banking where I do- the ATM balance has never been wrong (among loads of other pluses). I’ll use the ATM before lunch, pay for my lunch with a card, and invariably when I’m done with lunch and compare the new ATM balance to my receipt it’s up-to-date.

  34. djshack says:

    @Naame: BofA doesn’t have 24/7 customer service. Ironically, many smaller banks (and even my credit union) do. Lazy cheap bastards.

  35. ultbit says:

    They have already sarted they found anothe way to put the screws to us look at what my bank will charge me more than the overdraft can they really do this
    •We will charge you a fee of up to $39.00 each time we pay an overdraft.
    •Also, if your account is overdrawn for 5 or more consecutive business days, we will charge an additional $28.50 once every five business days thereafter until your account becomes positive.
    •There is no limit on the total fees we can charge you for overdrawing your account.
    What if I want KeyBank to authorize and pay overdrafts on my ATM and everyday debit card transactions?