On Thursday, the Federal Reserve finally announced rules that will prohibit banks from charging overdraft fees at ATMs and one-time debit card transactions without the consent of customers.
The rules, which will be effective July 1, 2010, appear in response to growing consumer dissatisfaction with the overdraft charges that they often do not realize until they receive their monthly statement. Banks previously added overdraft protection automatically to most accounts regardless of the amount that was withdrawn.
According to the new regulations, consumers must be given a notice explaining a financial institution’s overdraft services, including an explanation of the fees associated with the services.
The Federal Reserve took this decision primarily based on its investigation which showed that banking customers only want overdraft services if they know the details of what is required. However, some consumers do want overdraft protection services to make sure that some time-sensitive payments like rent and bills are covered, as long as they know the charges.
The Fed’s rules appear mostly in line with the new trend that some of the banks have already begun moving toward. In September, Wells Fargo & Company (WFC) said that it will not charge fees from customers if they overdraw their accounts by $5 or less. Following that, in October, Bank of America Corporation (BAC) announced that it will eliminate fees if a customer’s account is overdrawn by less than $10 in a single day.
Congress wants stricter rules going forward. Very soon, the Senate Banking Committee will discuss legislation that would go further than the current overdraft fees rules. We will keep an eye on this.
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