OSPIRG BLOG

The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

The new rules to regulate bank-imposed overdraft protection fees are not good enough, and Congress still needs to act.

As expected, the Federal Reserve final rules will require banks to ask consumers for consent, or an opt-in, before enrolling them in so-called ‘overdraft protection’ loan schemes, where banks charge an average $34 fee to cover transactions that would otherwise cause an unpaid overdraft.

(See OSPIRG's recent report "Tricks and Traps: The Hidden Cost of Banking in Oregon" for more details about bank fees and how they impact Oregonians every day.)

But, the Fed only provides the opt-in protection to point-of-sale debit overdrafts and ATM transactions, not recurring electronic ACH withdrawals or checks. Some of the time protection is never as good as round-the-clock protection.

Further, if the Fed really cared about consumers, it would also limit the total number of overdraft fees that a bank can impose each day and year and would have given consumers additional Truth In Lending law rights. Overdraft ‘protection’ is the only loan that banks can make to consumers that does not provide Truth In Lending rights.

Bills proposed by Rep. Carolyn Maloney (D-NY) and Senator Chris Dodd (D-CT) would provide consumers with much more comprehensive protections, including limiting the maximum number of overdraft fees to one per month and six per year. OSPIRG intends to work with Congress to enact broad legislation to replace the Fed’s partial effort.