The Fed Cracks Down on Overdrafts

Go Fed! In a very CFPA-ish move, the Fed has now announced that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that “protection”. And they even come with a quote from Ben Bernanke talking about “an important step forward in consumer protection”, which is not the kind of language we’re used to hearing from Fed chairmen.

One weird thing, though: in the letter the Fed has published as a model for banks to follow, consumers are given two choices at the bottom: the first choice is opting out of overdraft protection on ATM and debit-card transactions, while the second choice is opting in. That’s confusing, because opting out is the default option: if you simply ignore the letter and do nothing, you’re opted out automatically.

Why ask customers to sign and date a piece of paper to opt out of something they’re already opted out of by default? I’d much rather see language saying “if you don’t want us to authorize or pay overdrafts on ATM and everyday debit card transactions, you need do nothing”. But that’s just a niggle: this is an important step forwards.

Update: The Center for Responsible Lending emails to point out all the things which the Fed didn’t do, including capping the number of overdraft fees that a bank can charge per day, and preventing banks for charging far more in fees than the total size of the transaction. So there’s still work for the CFPA to do!

Comments

[User 502527:]

Here come the bank failures that the "little guy" will have to pay for anyway then...even if he never had an overdraft.

Nov 13 09:38 AM

[Silentz:]

I'm not so sure this is the best way to tackle this. If you don't get a 'courtesy clear' and pay the O/D fee, you end up having a bounced item, unless the system is now going to check your balance before approving a transaction, that is. Then there's the issue of gas station and restaurant transactions where the card is checked for a 'trial charge' of $1 or $10 the case of a gas station, and the estimated charge at a restaurant. What happens when those overdraw?

I'm not a fan of overdraft charges as a means of revenue, but I can see this piece of legislation leading to a whole mess of unintended consequences.

I work for a financial institution and have actually had to call on our Overdraft list, and let me tell you, there are lots of people that don't pay attention to how much money they have. Maybe that's the best place to start. Teach people to be fiscally responsible, and this problem will solve itself. The first question I would ask when someone complained about an overdraft fee was, "Did you bring your check register?". If the answer was "No, I don't keep one", then I looked at is as a roll of the dice, and you lost. I've also been in the position of overdrawing my account due to some fiscal stupidity of my own, and I never once complained, because every one of the charges was my own fault.

How 'bout we ask for a little personal responsibility here rather than immediately bashing on the bank? There are plenty of abuses from the bank side(i.e. dollar amount of the fee, order of posting transactions to gain the most fee income) that need to be addressed, but people also need to take some of the blame here too.

Nov 13 01:29 PM

[Tom Jacobs:]

Good point on the default choice and the opt in/opt out confusion for the consumer. One would think that the principles in books like Nudge,

www.librarything.com/w...

which emphasized making consumer friendly defaults like contributing to a 401K requiring one to opt out if desired, would be embedded in any policy adopted today by enlightened regulators. It does not say much for the Fed's attempt to beat any planned Consumer Financial Protection agency to the punch.

Nov 13 09:39 PM