The Fed cracks down on overdrafts

By Felix Salmon
November 12, 2009
announced that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that "protection". And they even come with a quote from Ben Bernanke talking about "an important step forward in consumer protection", which is not the kind of language we're used to hearing from Fed chairmen.

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Go Fed! In a very CFPA-ish move, the Fed has now announced that effective July 1, no bank can impose overdraft fees on its customers for ATM or debit card transactions, unless and until they explicitly ask for that “protection”. And they even come with a quote from Ben Bernanke talking about “an important step forward in consumer protection”, which is not the kind of language we’re used to hearing from Fed chairmen.

One weird thing, though: in the letter the Fed has published as a model for banks to follow, consumers are given two choices at the bottom: the first choice is opting out of overdraft protection on ATM and debit-card transactions, while the second choice is opting in. That’s confusing, because opting out is the default option: if you simply ignore the letter and do nothing, you’re opted out automatically.

Why ask customers to sign and date a piece of paper to opt out of something they’re already opted out of by default? I’d much rather see language saying “if you don’t want us to authorize or pay overdrafts on ATM and everyday debit card transactions, you need do nothing”. But that’s just a niggle: this is an important step forwards.

Update: The Center for Responsible Lending emails to point out all the things which the Fed didn’t do, including capping the number of overdraft fees that a bank can charge per day, and preventing banks for charging far more in fees than the total size of the transaction. So there’s still work for the CFPA to do!

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