Consumers should be helped by new Federal Reserve rules that will prohibit banks from charging overdraft fees on ATM and debit card transactions unless a customer allows it.
The new rules, which take effect July 1, mean that if you don't have overdraft protection, any debit card purchase or ATM cash withdrawal will be rejected if it exceeds the amount of money in your account.
And if you do want overdraft protection, your bank will have to give you a notice explaining the service and its fees before you can accept it.
Overdraft fees typically range from $10 to $38 for each transaction, according to a 2008 study by the Federal Deposit Insurance Corp.
Such fees and other service charges on bank-deposit accounts have been an increasing profit center for banks in recent years, totaling $21.5 billion in the first six months of this year, nearly as much as the total for all of 1999, the FDIC said.
The Federal Reserve’s ban on the fees was announced last Thursday and was praised by consumer groups.
Consumer groups said that the rule changes were long overdue but that they didn't go far enough. "The Fed should be applauded," said Lauren Bowne, staff attorney for Consumers Union, which had argued that the overdraft charges were really a form of high-interest loans. "Soon, banks will have to persuade their customers that these overdraft programs are beneficial compared to other lower-cost alternatives."
But consumer groups point out that even with the Fed's action, banks will still be able to provide, without your consent, automatic overdraft coverage of checks and recurring debit transactions — and charge you for those actions.
Nonetheless, the new Fed rules should offer consumers more protection and save countless overdraft fees now being charged.
