Well, strike one for the little guy. It became a little harder for banks to screw poor people today, and I'm thrilled.
The Fed bans overdraft fees on ATM and debit-card transactions
The rule, to take effect July 1, requires banks to get customers' OK for the fees, which have been a growing source of profit for banks. Those who decline will see transactions rejected.
I'm still seething about being forced to pay SIX overdraft fees - thirty bucks a pop! - because a check I'd deposited bounced, and my (ex) bank approved six small transactions the next morning without so much as a blip to let me know. That was three years ago, and I'm still ticked off. I never asked for "overdraft protection," so imagine my shock when I discover the bounced check plus what amounted to a $34.00 latte on my bank statement.
That's a hell of a loan, eh? The bank loans me four bucks at an interest rate not even the Sopranos could get away with! Millions of people have had these unscrupulous overdraft policies drain their bank accounts; banks last year raked in $37 billion in overdraft fees.
Factoid UPDATE, thanks to Oddball: According to the Wall St Journal, banks bring in from $25 billion and $38 billion a year in overdraft fees.
LA Times, By E. Scott Reckard November 12, 2009 | 12:40 p.m.
Flexing newfound muscle as consumer protector, the Federal Reserve today banned overdraft fees on automated teller machine and debit-card transactions unless consumers have actively opted for an overdraft protection service.
The new rules mean that banks will be required to get their customers' permission before charging fees when debit-card and ATM transactions trigger an overdraft. Customers who don't elect to have overdraft coverage will see their charges rejected if they put their bank accounts into the red.
Consumer advocates lauded the move as long overdue but said stronger measures contained in pending legislation introduced by Democrats were needed as well.
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"The Fed should be applauded," said Lauren Bowne, staff attorney for Consumers Union, which had argued that the overdraft charges were really a form of high-interest loans. "Soon, banks will have to persuade their customers that these overdraft programs are beneficial compared to other lower-cost alternatives."
TD Banknorth has a policy I find extraordinarily deceitful. If a customer has five "pending" transactions that total more than the account balance, the bank will process the largest transaction first (irregardless of the real time it was initiated) therefore causing all the smaller transactions to generate overdraft fees. So, instead of clearing four ten dollar transactions and bouncing the $200 one, the bank processes the $200 first to create four overdraft fees. Yes -- it's up to customers to carefully monitor balances; but is it ethical to rob them for making mistakes? Especially if the bank refuses to bounce/refuse transactions? As if that customer wasn't in poverty already!
Sen Dodd responded to the Fed's announcement today;
Giving consumers a choice is important, "but we need to do far more to protect customers from abusive bank products," Dodd said today in a statement. "We still need to stop the excessive fees, repeated charges, lax notifications and processing manipulation" in overdraft-protection programs.
Congressman Barney Frank and Senator Chris Dodd each have proposed legislation to protect consumers from their banks.
Dodd's bill would:
--Require banks to get customers' consent before enrolling them in an overdraft protection program for ATM and debit card transactions.
--Limit the number of overdraft fees banks can charge to one per month and six per year.
--Require that fees be proportional to the cost of processing the overdraft.
--Require customers be notified, by e-mail, text or traditional mail, when they overdraw their account.
--Require that customers be warned if an ATM or teller transaction will overdraw their account.