Press of Atlantic City

Fed Provides Customers Relief From Bank Overdraft Charges

A new rule affects fees on ATM and debit card transactions

Press of Atlantic City — Friday, November 13, 2009

From Press staff and wire reports

Banks will have to secure their customers' consent before charging large overdraft fees on ATM and debit card transactions, according to a new rule announced Thursday by the Federal Reserve.

The rule responds to complaints from consumer groups, members of Congress and other regulators that the overdraft fees are unfair because many people assume they can't spend more on a debit card than is available in their account. Instead, many banks allow the transactions to go through, then charge fees of up to $25 to $35.

For small purchases, such as a cup of coffee, the penalty can far exceed the actual cost of the transaction.

Under the Fed's new rule, which will take effect July 1, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don't "opt in," any debit or ATM transactions that overdraw their accounts will be denied, Fed officials said.

Larry Geltzer, of Absecon, said he plans to tell TD Bank he no longer wants it to cover purchases that would require an overdraft courtesy. He said he has been hit many times with a $35 overdraft fee for transactions worth far less. Sometimes, he said, he also is charged additional bank fees for insufficient funds and uncollected funds. "It's like they want you to overdraw your account so they can keep charging you," said Geltzer, who works for a payroll company, "and they don't explain to you what they're doing." The Fed's new rule was lauded by consumer advocacy groups, such as New Jersey Citizen Action, which have been calling for the government and legislators to better regulate bigger banks.

"This is one step forward to taking care of main street as opposed to Wall Street," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. "And it's great to see it coming from the regulators, although I think much more needs to be done."

The rule change does not cover transactions made with an actual paper check or regular electronic bill payments. Fed officials say consumers still want to be automatically protected if they overdraw their accounts in those instances.

Banks earn as much as $25 billion to $38 billion annually from overdraft fees, Fed officials said, but that total includes check overdrafts.

Other larger banks, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. also have said they plan to reform their practices after coming under fire for the fees.

But consumer groups and other regulators, including Federal Deposit Insurance Corp. Chairwoman Sheila Bair, said new rules still were necessary to ensure smaller banks followed suit.

Many lawmakers have criticized the Fed for failing to provide sufficient consumer protection in the past, a defect they say contributed to last year's financial crisis. Sen. Christopher J. Dodd, D-Conn., on Tuesday introduced a bill that would strip the Fed of its consumer oversight.

Dodd also proposed legislation last month that would have imposed limits similar to the Fed's on the banks' ability to charge overdraft fees.

Dodd called the Fed rule a "long-overdue announcement" and said the government should go even further.

"We still need to stop the excessive fees, repeated charges, lax notification and processing manipulation that have become standard in these so-called overdraft protection programs," he said.

The American Bankers Association, meanwhile, said the rule addresses consumers' main concerns about overdraft fees. Press Staff writer Erik Ortiz and The Associated Press contributed to this report.

Press Staff writer Erik Ortiz and The Associated Press contributed to this report.

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