In recent years, most banks started approving, rather than declining, debit and check transactions that exceeded what customers had in their accounts. The banks’ rationale: consumers would rather pay $39-a-pop bounce fees, banks contend, than risk embarrassment at the checkout counter. I don’t know about you, but I would rather have my card declined.
We’ve written about overdraft fees before, the latest article being “Overdraft Fee Legislation Gaining Momentum“.
Recently, the Fed issued new policy guidelines regarding overdraft fees. The policy requires customers to opt in to “overdraft protection” programs. The overdraft protection program means customers agree to pay a fee any time they overdraw their accounts at automated-teller machines or using a debit card. In a pro-active move, the Fed prohibited banks from charging higher fees to customers who don’t want overdraft protection.
Members of Congress have not halted their efforts to introduce legislation to take overdraft consumer protections one step further. Why? The Fed move is good, but isn’t enough, because:
- It doesn’t cover check or recurring-debit transactions
- It doesn’t cap the amount or number of fees that can be charged
- It doesn’t prevent banks from manipulating how they process transactions to increase fee income
As we’ve mentioned in our other posts, the banks are highly resistant to losing the “option” of charging overdraft fees, as they are such a huge profit center. 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 rules go into effect July 1.
Sources:
Wall Street Journal Online
Ask Liz Weston
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Mr. Bitter » Blog Archive » Chase what matters // Feb 23, 2010 at 12:24 pm
[...] The Federal Reserve recently issued new regulations that banks can’t automatically charge bounce fees like they have been. When I started out at Great Western 16 years ago, you paid $5 if you bounced a check and it wouldn’t be paid. Now, they’ll pay up to $1,000 worth of bad checks (and ATM withdrawals) and charge you $35. It’s an out-and-out profit funnel for the banks, a complete scam. The plan was to get people used to having their bad checks paid so they can “take advantage” of the most usurious loans ever offered – it works out to an interest rate over 500 percent in many cases. [...]