Concerned about bank fees? Fed wants you to weigh in on overdraft regulation
Consumer advocacy groups are urging bank customers to weigh in on a proposed rule change by the Federal Reserve concerning the practice called overdraft protection.
What with a bad economy, unemployment, and a dismal housing market to worry about, you might be tempted to ignore this issue. But if you've ever had to pay a nasty $35 charge for spending more than what you had in your bank account, this is one debate you need to participate in, urge Consumers Union and the Center for Responsible Lending.
The Federal Reserve has proposed a rule change giving customers the right to instruct their bank whether to pay overdrafts for automated teller machine withdrawals or debit card purchases.
It used to be that overdraft protection was provided just for check transactions. For a fee, the bank would honor a check even if there weren't enough funds in the account to cover it. That overdraft service is now extended to ATM withdrawals and point-of-sale debit card purchases.
ATM and debit cards have been marketed as the good plastic: Unlike credit cards, these were supposed to be the same as cash. Customers think they can't swipe and spend more than what is in their bank account, but they are wrong.
An overdraft study published late last year by the Federal Deposit Insurance Corp. found that at least 81 percent of banks allowed overdrafts to take place at ATMs and debit transactions. An overwhelming majority of banks in the FDIC survey did not inform customers that they lacked enough money in their accounts to cover their electronic transactions. Only about 8 percent of the financial institutions informed consumers that funds were insufficient before transactions were completed, thus giving them a chance to avoid both the overdraft and the fee. Fees assessed by banks ranged from $10 to $38.
In its proposed change to Regulation E, the Federal Reserve is considering two alternatives:
First option: Institutions would be prohibited from automatically enrolling customers for overdraft protection services. Instead they would have to first give customers notice and a reasonable opportunity to opt out of the service.
Second option: Institutions would be required to get a customer's permission to provide overdraft protection. Customers would have to choose to opt-in before any fees could be assessed.
The rule change would only apply to overdrafts for ATM withdrawals and debit card purchases. It would not affect overdraft protection for checks or recurring debit charges.
The Fed wants to know what you think. You only have until tomorrow to submit a comment. The easiest way is to respond by e-mail or go online. E-mail your comments to regs.comments@federalreserve.gov. Put "Docket No. R-1343" in the subject line. Online you go to www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com. 
