Fed: banks need customer consent on overdraft fees

Some good news..

WASHINGTON – 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 do 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.

Many larger banks, including Bank of America Corp., JPMorgan Chase & Co., U.S. Bank and Wells Fargo & Co. began instituting similar "opt-in" plans in late September 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.

Many 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.

http://news.yahoo.com/s/ap/20091112/ap_on_bi_ge/us_fed_overdraft_fees

"Excuse me sir. I have just covered my fist up to my wrist in a mixture of Bengay, Icyhot, and broken glass. Do I have your permission to ram it up your dry, unprepared ass?"

How dare the Fed take away my right to be viciously exploited by banks.

****ing banks. how can they expect me to keep track of how much money i have? don't they realize i'm too busy living beyond my means.

Originally posted by red g jacks
****ing banks. how can they expect me to keep track of how much money i have? don't they realize i'm too busy living beyond my means.

This would make it harder to live beyond your means. That's a good thing for people who forget (which happens to everyone, at one point or another. Just that some have more padding to "forget."😉, don't plan well (which is most of America.), or experience an unforeseen event or mistake (I'll describe mine, below.)

I maxed out a card to consolidate my debt. Benefit greatly outweighed the negative impact on my credit. I have special overdraft protection that will, instead of charging me a banking overdraft fee, simply charge the transaction to the card. I had some bullshit happen a few months ago that actually caused me to have to take advantage of that overdraft. (I got double charged on something that was a little over $400.) the overdraft protection/transfer thingie kicked in. Had I still be maxed out or just made a couple of payments, that overdraft thing would have cost me a LOT of money in charges. (Cause a bunch of smaller transactions that occurred AFTER the double charged one.)

Each of those tiny transactions, had my card still be maxed, would have cost me HUNDREDS of dollars. F*ck. That. I would have my bank, explained it and they would have said "get a refund from the organization that overcharged." I would have called the org. that double charged me, and they would have said, "we are only responsible for our double charge, but here's a coupon/$20 gift-card for your troubles."

In other words, I was really really close to getting f*cked over. Had I had some sort of rule in place that would reject the charge to overdraft, I would have caught the a**hole that put the transaction through twice, and adverted a huge mess. I'm no where even CLOSE to being frivolous with my money. I keep really good track of all my funds, I budget for just about everything, and I have a rainy day fund. None of that would have helped me had that double charge occurred shortly after I did my debt consolidation.

But, if I could have told my bank to NOT do overdraft on the credit card or bank account, I would have been safe. Currently...I didn't have that option. 😄

The bank just took 300 dollars from me. I hate overdrafts

I found some interesting news on the counter-effects this law may have on consumers..

Some analysts said the Fed's rule could lead banks to make up the lose revenue by charging for other services, such as checking accounts. Perhaps in anticipation of this shift, the Fed prohibited banks from charging higher fees to customers who don't want overdraft protection. The new rules go into effect July 1.

Bank of America expects to lose between $150 million and $200 million in revenue during the fourth quarter as a result. It is also testing annual fees on a limited number of existing credit-card accounts. A bank spokeswoman said there is no connection between the two events. "That is not how we look at it," she said.

Michael Moebs, an economist and chief executive of Lake Bluff, Ill.-based Moebs $ervices, said the new Fed policy will cost banks on average a minimum of $5 per checking account. For the U.S. banking system, he predicts a cost of about $600 million, or 2% of the estimated $38.5 billion in consumer overdraft revenue.

The new limits will likely prompt banks to seek new revenue sources in a weak economy. Some have started raising credit-card interest rates ahead of new regulations that will take effect next year. Industry executives have said they may consider reinstating annual fees for credit cards and imposing minimum balances on checking accounts. Industry analysts speculate that the restrictions will ultimately result in even tighter bank lending.

http://online.wsj.com/article/SB10001424052748703811604574532063720902686.html?ru=yahoo&mod=yahoo_hs

Originally posted by FistOfThe North
I found some interesting news on the counter-effects this law may have on consumers..

Some analysts said the Fed's rule could lead banks to make up the lose revenue by charging for other services, such as checking accounts. Perhaps in anticipation of this shift, the Fed prohibited banks from charging higher fees to customers who don't want overdraft protection. The new rules go into effect July 1.

Bank of America expects to lose between $150 million and $200 million in revenue during the fourth quarter as a result. It is also testing annual fees on a limited number of existing credit-card accounts. A bank spokeswoman said there is no connection between the two events. "That is not how we look at it," she said.

Michael Moebs, an economist and chief executive of Lake Bluff, Ill.-based Moebs $ervices, said the new Fed policy will cost banks on average a minimum of $5 per checking account. For the U.S. banking system, he predicts a cost of about $600 million, or 2% of the estimated $38.5 billion in consumer overdraft revenue.

The new limits will likely prompt banks to seek new revenue sources in a weak economy. Some have started raising credit-card interest rates ahead of new regulations that will take effect next year. Industry executives have said they may consider reinstating annual fees for credit cards and imposing minimum balances on checking accounts. Industry analysts speculate that the restrictions will ultimately result in even tighter bank lending.

http://online.wsj.com/article/SB10001424052748703811604574532063720902686.html?ru=yahoo&mod=yahoo_hs

Sounds like what I was saying in another thread a few weeks ago. America needs to make a shift from a debt system to a more financially sound system. That would require over a hundred million Americans to actually plan better, financially, and pull their heads out of their hind parts, though.

Edit - In other words: live more like Jaden and less like a Hip Hop artist.

gbgjkh