Fed Tightens Rules on Overdraft Fees

Written by: Lisa Matthys

Are you one of those consumers who look at their bank account to find that they had overcharged their account by $0.01? Many consumers, who purchase small ticket items with their debit cards, have the impression that the transaction simply won’t go through if there is not enough money in the account. However, that isn’t the case.

Some banks offer consumers an option for overdraft protection upon establishing their account with the bank. If declined, consumers who run their accounts close to zero are at a high risk of paying an additional fee if they overcharge their account (between $25 and $35). Banks generate approximately $38 billion a year nationwide. So for example, going over your account by $0.01, you will have to pay approximately $35.01 if you didn’t agree to an overdraft protection program.

However, not all banks market overdraft protection programs. Most banks silently and automatically enroll their customers into overdraft programs, and charge large fees for each overdraft purchase. The Federal Reserve has put in place new finance rules to ensure consumer protection. Customers will have to opt-in to overdraft protection programs before banks can charge them with overdraft fees on debit purchases and ATM withdrawals. These new rules will be implemented next summer.

Banks will be sure to complain, fight, and find loop holes, against this new financial rule because the overdraft charges account for a bulky portion of their profits. However, finance leaders in Congress feel that more needs to be done to protect consumers such as capping the number of overdraft fees allowed per year and prohibiting banks from manipulating the chronology of purchases in order to maximize the number of overdraft fees.

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