Fed Prohibits Debit Card Overdraft Fees without Consumer Opt-In
The Federal Reserve Board has 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 and are effective July 1, 2010.
"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."
Thank you Fed!
Posted by: Chrystal K. | November 12, 2009 at 03:26 PM
And in other news, the Dow dropped to 3 as every major publicly traded banking entity forecasts that they will miss their revenue projections for the remainder of their existence, short as it may be.
Hey, I know.
Maybe the government can save my retirement by taking over the banking industry with one government run uber-bank. But, I suppose they wouldn't pay taxes, which would make them a credit union.
Posted by: Depressed Banker | November 12, 2009 at 04:10 PM
Interesting. I'll be honest and say that I haven't read the reg changes yet, but the high-level statements above imply interesting changes for issuers and issuer-processors doing limit- and even balance-file based authorization, rather than real-time balance authorization.
Does the issuer have a window of time to refund the overdraft if it is charged to the borrower? If not, I see limit-based auths going the way of the dodo bird, while balance file authorization becomes a tricky business, with the issuer needing to push balance file updates to their processor/network of choice as often as it is prudent to do so. Probably means overhauling the stand-in process too.
Certainly makes a good case for PIN-based authorization combined with real-time balance checking.
Posted by: Curious | November 13, 2009 at 06:50 AM
Thannks to all you Americans that voted for "Hope" and "Change"
Are you enjoying it yet - well there's more coming. Watch your paycheck shrink with your new healthcare....
Canada is looking better everyday.
Posted by: Sid | November 14, 2009 at 01:18 PM
Sid - you actually think this is a bad thing?? Only a republican would think protecting people is a bad thing, and making banks more money is a good thing. Please, move to Canada. Take all your idiot friends and your backwards political party with you. I'm sure it would go over real well there.
Depressed Banker - pretty much the same as above. I really don't care of the banks don't hit their profit margins. Maybe, just maybe, if they aren't making as much money they will have to put someone in charge who knows how to run a business efficiently and doesn't pay him/her self a multi-million dollar salary to do so.
I'm so tired of all the people who think this country isn't broken. Come back to reality and take a look around at people who live in it every day. If you could quit being so incredibly self-centered for even a few minutes you might see what the rest of us see.
Posted by: TCH | November 17, 2009 at 01:40 PM