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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I’m sure there’s market research on it that would tell us the pros and cons and reasons why you would or would not include something redundant like this. It’s not an intuitive thing when default settings change, so this may have been included so that people who aren’t careful readers won’t be confused.

And I’m sure this doesn’t matter because the model letter will be shredded. We can all look forward to hysterical letters from banks warning us that the government is taking away our overdraft “protection” unless we act now! Evil government.

Posted by anon | Report as abusive

The Fed needs to be gutted and rebuilt. Our current banking industry is like a bull in a china shop leaving a wake of destruction (see: ). We encourage Americans to get in debt then kill the economy with greed and over regulation in the credit markets.

Posted by Mikey | Report as abusive

The banks though I don’t think are going to just sit by and see all this money go out the window without any response. They are all about their bottom line and are now going to have to make up this lost revenue somehow. What we can expect from them is now they will start charging for other services such as simply having a checking account.

The people that manage their accounts well and never come close to having an overdraft charge are the ones that are going to suffer. These people are the ones that are going to pay the price for the seemingly less responsible people. Isn’t that how it works with everything in this world though? Why should this be any different? The people that do things the right way often seem to have to pay the price for those that can’t manage themselves. Its not entirely those people’s fault either. Its also the banks fault for getting too greedy with the overdraft system. They saw a great source of profit, and exploited it to the extent that something had to be done about it.

Check out my blog on the Fed’s crackdown on the overdraft cash cow at…. ds-crack-down-on-overdrafts/

Why not emliminate overdrafts entirely by declining a card with insufficient funds?

Are you kidding me?

How in the name of reason can one argue that someone that does something over and over again is being tricked into it? People decide to use the service and understand the costs (as proved by the fact that they use it repeatedly — and if they use the service, they should pay for it.

If someone believes they can offer the service less expensively, let them do so. Otherwise, the price is fair.

And criticizing businesses for only caring about their bottom line is ridiculous. It is that profit motive that continues to improve our standard of living. Diminish it and diminish our desire to produce; eliminate it and eliminate everything we have created.

Posted by John Galt | Report as abusive

I got hit with $105 worth of overdraft charges this morning for two purchases I made last weekend: one subway sandwich and $10 worth of gas. The charges did not go through until the wee hours of the morning, regardless of the $100 cash deposit I made yesterday or the direct deposit I receive from my company every Thursday evening.

When I asked why I was charged overdraft three times for two purchases, the answer never made clear sense. I was then told they could see about removing one of the charges.

Banks choose to do things this way, otherwise I wouldn’t have lost all that money.

Posted by mandrews | Report as abusive