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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