Earlier this month, the Federal Reserve announced that starting July 1, banks cannot charge new customers overdraft fees unless a customer gives their consent. Currently, many customers have to opt out of overdraft fee programs or are hit with hefty fines when they have insufficient funds in their accounts.
‘ The Fed did not set any limits on the amount banks can charge for overdraft fees or how many times a month they can charge customers overdraft fees. Sen. Chris Dodd, D-Connecticut, Senate Banking Committee chairman, said he will propose legislation that will only allow banks to charge one overdraft fee per month to a customer and no more than six a year.
‘ The Senate banking bill, if passed, would also require that banks process transactions in the order that they occurred, which consumer advocates say will help limit the number of overdraft fees a customer is charged. Some banks process the most expensive transaction a customer makers first, which often results in multiple overdraft fee charges.
‘ Some consumer groups argue that the Fed’s rules do not go far enough and that legislation limiting the number of overdraft fees a bank can charge needs to be passed.
‘Congress needs to step in to stop the abusive practices the Fed has known about for nearly a decade, but once again has failed to address,’ Eric Halperin, director of the Center of Responsible Lending’s Washington D.C. office, said in a statement.
Federal Reserve Chairman Ben Bernanke said that the Fed is making significant progress in helping consumers avoid overdraft fees.
‘The final overdraft rules represent an important step forward in consumer protection,’ Bernanke said in a statement. ‘Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.’
Nessa Feddis, American Bankers Association Vice President and Senior Counsel, told the Daily Free Press in October that banks prefer an opt-out program to the opt-in requirement. The American Banker’s Association, which represents thousands banks across the country, has created a task force to examine consumers concerns about overdraft fees following the Fed’s announcement.’
‘ ‘This new rule addresses the primary concerns that have been raised by consumers and policymakers and will help bring consistency and clarity to overdraft programs,’ said Edward Yingling, ABA President, about the opt-in requirement in a statement. ‘Our goal is to have a system that works well for banks and customers and keeps the payment system running efficiently.’
‘ The average overdraft fee is $34 in the U.S. according to the Center for Responsible Lending. Banks are set to rake in $38.5 billion in overdraft fees this year according to Moeb Services.
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Why is the Federal Reserve Deregulating Banks by Removing the Consumer Protections in the Truth in Lending Act from Application to Bank Overdraft Plans at the Same Time that Congress is Proposing Strengthening Consumer Protections in Bank Overdraft Plans?<p/> On Thursday November 12, 2009 the Board of Governors of the Federal Reserve adopted a new regulation and issued a new Official Staff Commentary relating to bank overdraft fees. The regulation is about 93 pages in length and has the appearance of a consumer friendly regulation that has a provision that as of July 1, 2010 consumers must affirmatively opt-in to overdraft protection plans. However, I believe that even this attempted consumer friendly provision does not go far enough in that it does not apply until July 1, 2010.<p/> Given the recent history of the banks in raising credit card interest rates before the effective date of the new federal law providing enhanced consumer protections for credit card consumers, one can only be suspect that banks will use this time before the July 1, 2010 effective date to continue to harm the interests of consumers. The regulation does not provide substantive protections to consumers, but rather to the contrary contains a provision buried in the fine print that deregulates bank overdraft protection plans by removing the Truth in Lending Act (TILA) from application to overdraft plans.<p/> This untimely deregulation of banks with respect to overdraft plans is arguably the most damaging provision of the regulation and eviscerates any vestiges of consumer protections for those who have already been affected and for those who will be affected in the future by bank overdraft plans. Not only are there no safeguards for consumers, the interpretation by the Federal Reserve that makes TILA inapplicable enables banks to continue to perpetuate unfair practices with impunity.<p/>Attorney Peter N. Wasylyk, 1307 Chalkstone Avenue, Providence, RI 02908<br/>Tel
pnwlaw@aol.com