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Archive for Friday, November 13, 2009

Complaints spur overdraft fee overhaul

Banks must inform users of penalties under rule

November 13, 2009

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Customers use ATMs at a Bank of America branch office in Boston in this Oct. 16 file photo. The Federal Reserve has issued a new rule that will prohibit banks from charging overdraft fees on ATM and debit card transactions unless a customer allows it. The new rule will take effect July 1.

Customers use ATMs at a Bank of America branch office in Boston in this Oct. 16 file photo. The Federal Reserve has issued a new rule that will prohibit banks from charging overdraft fees on ATM and debit card transactions unless a customer allows it. The new rule will take effect July 1.

— Banks will have to secure their customers’ consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.

The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can’t spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.

For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.

Under the Fed’s new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don’t “opt in,” any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.

Many consumers want checks and regular electronic bill payments to be covered in the event of an overdraft, Fed officials said. As a result, those transactions aren’t covered by the rule.

Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.

Ashley Richardson, 26, said she has received fees of $37.50 by U.S. Bank for purchases of as little as $2 or $3 that overdrew her account. Richardson, who lives in Los Angeles, said she’s asked to opt-out of the overdraft program without success.

“I’m a very unhappy customer,” she said.

Steve Dale, a U.S. Bank spokesman, said the bank wouldn’t comment on specific customer complaints. But the bank plans to eliminate fees if an account is overdrawn by less than $10 and will allow customers to opt out of the overdraft program. Those changes, announced in late September, will go into effect Jan. 1, he said.

Other larger banks, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. also have said they plan to reform their practices after coming under fire for the fees.

But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairman Sheila Bair, said new rules were still necessary to ensure smaller banks followed suit.

Lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year’s financial crisis.

Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.

Dodd also proposed legislation last month that would have imposed limits similar to the Fed’s on the banks’ ability to charge overdraft fees.

Dodd called the Fed rule a “long-overdue announcement” and said the government should go even further.

Comments

PeteWas 5 years, 1 month ago

Why is the Federal Reserve Deregulating Banks by Removing the Consumer Protections in the Truth in Lending Act from Application to Bank Overdraft Plans at the Same Time that Congress is Proposing Strengthening Consumer Protections in Bank Overdraft Plans?

 On Thursday November 12, 2009 the Board of Governors of the Federal Reserve adopted a new regulation and issued a new Official Staff Commentary relating to bank overdraft fees.  The regulation is about 93 pages in length and has the appearance of a consumer friendly regulation that has a provision that as of July 1, 2010 consumers must affirmatively opt-in to overdraft protection plans. However, I believe that even this attempted consumer friendly provision does not go far enough in that it does not apply until July 1, 2010.

 Given the recent history of the banks in raising credit card interest rates before the effective date of the new federal law providing enhanced consumer protections for credit card consumers, one can only be suspect that banks will use this time before the July 1, 2010 effective date to continue to harm the interests of consumers. The regulation does not provide substantive protections to consumers, but rather to the contrary contains a provision buried in the fine print that deregulates bank overdraft protection plans by removing the Truth in Lending Act (TILA) from application to overdraft plans.

 This untimely deregulation of banks with respect to overdraft plans is arguably the most damaging provision of the regulation and eviscerates any vestiges of consumer protections for those who have already been affected and for those who will be affected in the future by bank overdraft plans.  Not only are there no safeguards for consumers, the interpretation by the Federal Reserve that makes TILA inapplicable enables banks to continue to perpetuate unfair practices with impunity.

Attorney Peter N. Wasylyk, 1307 Chalkstone Avenue, Providence, RI 02908 Tel: 401-831-7730 Fax: 401-861-6064 E-Mail: pnwlaw@aol.com

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