Washington, D.C.— Starting tomorrow, banks must obtain permission from new customers before enrolling them in costly overdraft coverage for debit-card transactions. The Federal Reserve Board's new rule improves the status quo but still falls far short of what's needed: Banks should not be allowed to impose exorbitant charges that bear no reasonable connection to the overdraft amount or a lender's cost for making the loan. Banks also continue to pile on overdraft charges, including by manipulating transactions to maximize the number of fees they hit customers with each day.
In addition, starting August 15th, banks will need permission from existing customers before they can enroll them in overdraft programs.
Banks have been scrambling in advance of the July and August deadlines to persuade customers to say okay—to opt in—to overdraft charges, but routinely fail to fully disclose the existence of lower-cost options, such as a line of credit.
The Federal Reserve has watched for years as abusive overdraft practices became widespread. The Fed—and, eventually, the new consumer financial protection agency Congress is about to create—must do more to protect customers from practices that maximize fee revenue but provide little or no additional benefit to debit-card holders. The Fed's failure to do more means that the most financially vulnerable, who tend to overdraw more frequently than others, continue to be trapped in debt by unfair overdraft practices.
For more information, go to http://action.responsiblelending.org/site/PageServer?pagename=overdraft.
For more information: Kathleen Day at (202) 349-1871 or firstname.lastname@example.org; Ginna Green at (510) 379-5513 or email@example.com; or Charlene Crowell at (919) 313-8523 or firstname.lastname@example.org.