New Rules Put Limits on Overdraft Fees

Tacoma, WAFor consumers who are tired of paying excessive bank overdraft fees, some relief is on the horizon. Next summer, new federal regulations will put limits on bank overdraft fees, requiring banks to notify customers before charging overdraft fees.

According to the November 12 edition of the New York Times, the Federal Reserve's new rules will require that banks receive permission from cardholders before charging them overdraft fees incurred at retail stores or automated teller machines.

The new rules also require that banks provide consumers with easy-to-understand information about policies and fees—including overdraft fees—associated with debit cards.

However, the new regulations do not cover checks or overdrafts resulting from recurring transactions, such as automatic monthly withdrawals for bills, if the cardholder does not have enough money in his or her account to cover the check or bill payment. Furthermore, customers who make online payments with a checking account number rather than a debit card number will not be covered by the new regulations.

The Federal Reserve noted in a news release on November 12 that consumer testing shows that consumers want to be asked if they would like overdraft protection for one-time purchases and automated teller machine transactions. However, the Reserve's testing also shows that consumers would like overdraft services for important bills, such as checks they use to pay rent and utilities.

The regulations are in effect for new cards as of July 1, 2010. Banks have until August 15, 2010 to make changes for existing cardholders. The regulations prohibit financial institutions from discriminating against any consumers who choose not to opt into overdraft protection. This means that consumers who do not opt in must be provided with the same account terms, conditions and features as consumers who do opt in for overdraft protection.

Overdraft fees provided lenders with almost $37 billion in 2008, according to Bloomberg (November 12, 2009).

"The final overdraft rules represent an important step forward in consumer protection," Federal Reserve Chairman Ben S. Bernanke said in the Federal Reserve's statement. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."