With Congress threatening to create new consumer protection agencies to protect the public from customer-unfriendly banking practices, the Federal Reserve stepped in today to prove it is still relevant and involved with banking regulation. The Fed announced that as of July 1, 2010 for new bank accounts or August 15, 2010 for existing accounts, banks must have received permission from their customers before charging overdraft fees.
Overdraft protection will only be an opt-in service. There are some exemptions to this new rule, however. The only type of overdraft protection requiring customers’ consent is the type in which the bank covers the overdraft to cover the debit. If your overdrafts are covered by a linked savings account or credit card, you could still be charged a fee. Usually these fees are lower, such as $5 rather than $35.
Also, only overdrafts caused by transactions with debit cards or ATM cards qualify for opt-in only. If a customer writes a check that causes an overdraft when cashed, the bank is still free to charge an overdraft fee without the account holder’s permission. Banks still argue this overdraft coverage is a benefit that customers want and don’t mind paying the fee. Customers would rather have their rent or utility check go through if it costs $35 to cover the overdraft than to have their check bounce.
According to a recent survey by ING Direct, 24 percent of Americans are angry about overdraft fees. Are you angry? I can’t bring myself to get worked up about these fees, myself; avoiding them is pretty simple:
- Don’t let your bank account get anywhere close to a zero balance. Always keep a buffer in any account you use for making payments. If you get close to zero, you are much more likely to fall into a bank’s trap, including multiple overdraft fees on the same day.
- Don’t count on money you deposit into your account actually being there until you confirm that the cash is available. Sometimes check deposits take more than a week to clear, and banks can still pull back the funds for weeks after the deposit if there is a problem.
- Here are ten tips for avoiding overdraft fees.
Banks will earn almost $40 billion from overdraft fees this year, and you can be sure the industry doesn’t want to see that practically free revenue disappear. When one door closes, another opens. Banks will innovate and find news ways to collect fees. We already see Bank of America planning to charge annual fees to credit card users who pay their balance in full every month. I expect the news will be full of stories about new fees for the next year.
Photo credit: smith
Fed: banks need customer consent on overdraft fees, Associated Press, November 12, 2009
Updated December 22, 2011 and originally published November 12, 2009.