Three Cheers for The Federal Reserve.
The New York Times reported yesterday that the Federal Reserve will move to restrict banks’ abilities to charge overdraft fees.
The Fed’s new rules will have multiple impacts on consumers’ relationships with banks:
1. Most importantly, all consumers will be notified of debit card policies and fees in clear, easily comprehendible language.
2. Starting July 1, 2010, banks will no longer have the ability to charge exorbitant overdraft fees on most common purchases.
3. Customers will have to opt-in to overdraft protection policies in order to be subject to them.
4. If a consumer does not opt-in to overdraft protection, he or she will simply be denied at the register for purchases over their available balance.
Overdraft fees will still be charged for purchases made by check and on recurring debit card payments (i.e. auto-pay monthly bills). However, purchases at retail stores will not be subject to overdraft and withdrawals at ATMs will trigger a warning that a customer is about to overdraft. Only if the customer chooses to continue with their withdrawal will they be charged an overdraft fee at an ATM. According to the NY Times, the distinction between types of payments was made in response to consumer satisfaction surveys. These surveys concluded that consumers are less aggravated by fees on checks and recurring payments than by fees on retail purchases and ATM withdrawals.
Currently, consumers can be charged overdraft fees upwards of $30 for purchases far less than the fee. Under these current conditions, a $3 cup of coffee that pushes an account below zero could cost a customer 10 times that amount in fees. As we described in earlier blogs, overdraft fees are essentially high interest loans made without the consent of the consumer. The Fed’s realization of this injustice and action to remedy it, however dilatory, is highly praised.
This recent move is a step in the right direction, and one The Corporate Observer has advocated for in the past (see: “Big Banks Strike Again: High Interest Loans Disguised as Protection”). Consumers’ rights to full disclosure in the banking world are of paramount importance and the Fed deserves congratulations for its responsible action.
Assisted by Zach Kady
