The Federal Reserve has announced a new debt card overdraft fees rule. This new rule prohibits banks from automatically signing up customers for overdraft protection for transaction involving debt cards or ATMs.
Under the new rule that goes into effect July 1, 2010, banks will have to first ask their customer if they wish to opt into overdraft protection for any debt card or ATM transaction. The bank can only charge them an overdraft fee on those transactions if consumer opts into the overdraft protection program.
Currently as it is, most banks automatically enroll their customers into overdraft protection programs for debt card and ATM transactions. This means if a person purchases a cup of coffee and they do not have the funds in their account to cover the cup of coffee, the transaction will go through as if there is no problem.
The customer will be charged for the cup of coffee and also receive an overdraft fee that can be around $35. This makes that cup of coffee be almost $40 and the customer will not even know it.
With the new rule, the transaction for the cup of coffee will be declined if there are not sufficient funds to cover the transaction. At this point, banks will still be able to automatically enroll customers in overdraft protection for their checks and automatic electronic payment programs. If a customer writes a check and does not have the funds, then the bank can process the check and charge an overdraft fee.
Overdraft fees have become a huge revenue source for banks. It is estimated that the banks will make around $39 billion this year on overdraft fees.
Congress has been working on legislation to protect consumers from excess fee charges by banks, such as debt card overdraft fees. Read here on how some banks have responded to the proposed legislation.
Many in Congress have complained about the Fed's inability to properly control and protect consumers from excessive fees. While Congress is happy with the new rule on overdraft fees, they are still working on additional legislation to restrict banks abilities to charge fees to their customers and to strip the consumer protection duties from the Fed.
The Fed’s new rule prohibiting banks from automatically enrolling customers into overdraft protection programs will prevent many customers from facing massive overdraft fees without knowing it is happening. This could be the first step of protecting consumers from excessive banking fees in the future.
Written by Denise Clay
Exclusive to HULIQ
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