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The Changing Landscape of Rules, Policies

By Jonathan Jones

Federal Reserve's Rule Changes for Overdraft Fees

On Nov. 12, 2009, the Federal Reserve, the central banking system for the United States, issued new restrictions on banks' charging overdraft fees on debit cards and automatic teller machines (ATMs). Effective July 1, 2010, rules are intended to provide consumers a choice on whether or not to accept overdraft services, as well as improve disclosure practices of the fees and terms associated with overdraft policies.

Consumer groups applaud the changes as the first step in reforming overdraft fees, but note that they don't put limits on the amount or number of penalty fees that can be assessed against debit card overdrafts. The rule changes are expected to reduce penalty fees by $4 to $6 billion a year. Even with the rule changes, banks could still reap an estimated $20 billion from overdraft fees, according to the Center for Responsible Lending.

Highlights of the rule changes:

Consumers' Consent -- the new rules requires the approval of consumers, including existing account holders, before financial institutions implement overdraft services on ATM and debit card transactions. Consumers also have the right to drop out of the program at any time.

Separating checking account and ATM overdraft services -- the new rules prohibit banks and other financial institutions from tying overdraft services for checks and other transactions to the consumer opting in to overdraft service for ATM and one-time debit card transactions. The new rules do not require consent for overdraft policies for checks.

Uniform Terms, Conditions and Features -- the new rules require banks and other financial institutions to offer the same terms, conditions and features to consumers who opt out of the overdraft services as they would for consumers who opt in to overdraft services.

Revised Overdraft Policies

During the last months of 2009, several of the largest banks announced voluntary revisions to overdraft policies in anticipation of the Federal Reserve's new rules. Banks say their actions are an effort to make overdraft policies clearer and to give customers more control over their debit cards and the fees they pay. Some of the policy changes are already in effect, while others will be implemented in 2010.

Contact your local branch to learn more.

A summary of new policies implemented by four of the largest U.S. banks:

  • Bank of America

    Effective Immediately:

    • Overdraft fees won't be charged when a customer's account is overdrawn by a total amount of less than $10 a day
    • No more than four overdraft fees per day
    • Easier methods for customers to opt out of overdraft services
    • Clearer, less ambiguous terms to customers will be provided regarding overdraft services

    Effective June 2010:

    • Imposes annual limit on the number of times customers can overdraw their accounts at the point-of-sale when they don't have sufficient funds to cover transactions
    • Contacts customers who are nearing their annual limit to offer assistance in managing their finances
    • Provides new customers the choice to opt in to overdraft services when opening an account

    + Bank of America Policies & Fees

  • Chase

    Effective 2010:

    • Eliminates overdraft fees for debit cards, unless the customer opts in to overdraft services
    • Modifies processing of customers' payments to recognize debit card transactions and ATM withdrawals as they occur
    • Overdraft fees will not be charged when a customer's account is overdrawn by a total amount of $5 or less
    • Reduces maximum number of overdraft fees per day from six to three

    + Chase's Policies & Fees

  • Wells Fargo

    Effective 2010:

    • Eliminates overdraft fees for customers if they overdraw their accounts by $5 or less
    • No more than four overdraft fees per day
    • Customers can opt out of overdraft coverage

    + Wells Fargo Policies & Fees

  • U.S. Bank

    Effective Date to Be Determined:

    • Eliminates overdraft fees when the overdraft amount is less than $10, regardless of the number of overdraft transactions
    • Limits the number of overdraft fees to no more than three per day
    • Offers opt out option for overdraft services
    • Establishes an annual cap on the amount of overdraft fees that can be assessed on any single account

    + U.S. Bank Policies & Fees

Jonathan Jones is a journalist with the Investigative Reporting Program in Berkeley, California. He is currently working on a book about the rubber industry in West Africa.

posted november 24, 2009

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