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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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.
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.
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).
Probably. Without poor, financially inept people to subsidize our accounts, we might have to start paying for them. :(
They'll just change the name to "dude you can't pay your bills fee" and merrily chug along.
While it's hard to keep track of how much moolata is in your piggy-account, why not just schedule it as a weekly visit to the atm for cash and a balance reconciliation? Maybe I'm impartial because my branch is a 5 minute walk away.
This whole visa debit bullhocky caused all these problems I tells ya!
@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.
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...
@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!
@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.
@TCama:
Dishonest? You mean banks hide the fact that you will be charged a fee if your account balance drops below $0?
@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.
@nstonep:
If you're going to rely on an ATM to tell you how much money is in your account (BAD MOVE if you don't have a lot of money), you might as well use online banking. OR if your balance is typically low you can do what you're supposed to do - keep track of the balance in your checkbook. I know it seems silly to do that, and for someone who has money it is kind of silly. But if you know you don't have much money, and you know a $35 fee would hurt, it pays to take the time to do it.
@GreatWhiteNorth: The credit union I was with offered an opt-in or out choice. I thought everybody did this?
Ok, dumb question....can someone clarify "one-time debit card transactions" for me?
@Tzepish:
How is that dishonest? Banks don't hide the fact that they do it. On the contrary they claim they're doing it for your benefit! It's not a consumer-friendly practice in my opinion, but it's certainly not dishonest.
Balancing your checkbook is now opt-out I see.
@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.
@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.
@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.
@larrymac - please put me on your do not call list: The PDF linked from the Fed site linked above contains 92 pages. On average, it looks like the phrase "one-time" is used twice per page. However, there doesn't seem to be a specific definition of "one-time debit card transaction". There is this though - "In the Board's consumer testing, participants generally indicated that they were more likely to pay important bills using checks, ACH, and recurring debits, and to use debit cards on a one-time basis for their discretionary purchases."
Have a read. Almost guaranteed to make your eyes glaze over by page 10.
@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?
@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.
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.
@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...
@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.
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.
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.
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).
Sorry. . . Just because they do disclose this fact does not make it HONEST. or better yet: Just because they do disclose this fact does not make it NOT dishonest.
@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.
@LostAtoll: I can't tell you how many people would call my old job saying that. Only for me to the call later with them cussing and moaning that their card got declined when they had $200 dollars worth the groceries at the grocery store.
"I'm sorry ma'm, but you specifically told us you no longer wanted us to cover your overdrafts and YOU wanted to be declined when you didn't have enough funds."
ALL THE TIME...
@soundreasoning: Companies are still entitled to make money.
Everyone seem to be anti 'socialist' (healthcare and what not) and yet they get pissed when a company tries to make money in our capitalist society.
One or the other, not both.
@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!
@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.
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.
Hail to the conquering heroes!
@idip: It is one thing to try and find innovative ways to make money. It is something entirely different when you are trying to find ways to circumvent the law in order to make money.
"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.
@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.
@idip: All those people have to do is ask, and poof -- the ability to charge more than you have in your account is restored.
@idip: The difference now is that the consumer gets to make the choice instead of the banks making the choice for us in the name of our own "protection".
If a consumer chooses not to opt in to the program and then later realizes that it doesn't fit their lifestyle then they can always fix that with a quick phone call to their 24/7 customer service.
...and if you refuse to opt-in you can just take your business elsewhere. It's not like they have an obligation to do business with you.
@uncle moe: Yes, it's very dishonest of people to let businesses double charge them months later: [consumerist.com]
"I'm from the federal government and I'm here to help"
Well about frickin time!
@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.
@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.
Well... There goes my free checking account....