Long overdue, new rules should help consumers avoid bite of overdraft fees
WASHINGTON - New rules by the Federal Reserve should help curb those expensive overdraft fees that have become an annoyance for many consumers.
By next summer, financial institutions will be prohibited from charging new and existing customers overdraft fees on transactions at automated teller machines and with debit cards unless the customer consents to such overdraft protection.
Consumer advocates and members of Congress have been complaining for years that banking institutions were automatically enrolling customers in overdraft programs. And customers have been complaining loudly about being hit with fees sometimes as high as $35 for purchases that might have cost them a few dollars.
“The final overdraft rules represent an important step forward in consumer protection,’’ said Federal Reserve chairman Ben S. Bernanke.
Not everyone is thrilled about the new rules.
“We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering,’’ said Eric Halperin, director of the Washington office of the Center for Responsible Lending. “But this improvement is undermined by the Fed’s failure to propose or enact necessary safeguards against a host of unfair practices.’’
For instance, Halperin said, the regulatory change does not prohibit institutions from charging an unlimited number of overdraft fees in a single day, even if the transactions are for small amounts.
Although long overdue, these new rules will at least help many people avoid the nasty bite of overdraft charges for ATM and debit card transactions. That’s something to praise.
The final rule requires consumers to give their informed consent, or opt in, before overdraft fees may be assessed on ATM and debit-card transactions. Fed officials said that, based on consumer testing, they decided not to include checks. Research showed that most consumers wanted overdraft services to cover important bills.
Institutions have a mandatory compliance date of July 1. However, existing bank customers could technically still be charged an overdraft fee until Aug. 15. The Fed said the extra time was given so customers could explore less-expensive options to cover shortfalls in their banking accounts.
Overdraft fees have become a huge revenue generator for financial institutions. The average cost of overdraft fees was just over $26 per item in 2007, according to a report from the Government Accountability Office, although larger banks tend to charge more.
Overdraft fees are up 35 percent from 2006 to 2008, according to the Center for Responsible Lending. The nonprofit said banks and credit unions collected nearly $24 billion in such fees in 2008.
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com. 
