New protections from high overdraft fees start 7/1
June 30, 2010
New Regulations Aim to Rein in Costly Fees Triggered by Debit Card Overdrafts
WASHINGTON, D.C. – Starting July 1, banks won’t be able to automatically enroll new customers into high-cost overdraft loan programs. Beginning on that date, new customers will have to “opt-in” to such programs if they want them. Consumers who do not opt in will not face costly fees for overdrafts triggered by debit card transactions. Existing bank customers will get the benefit of the same “opt-in” rule for debit overdraft loan fees starting on August 15.
“This puts consumers in charge by ending automatic sign-up for high cost overdraft loan programs,” said Gail Hillebrand, Director of Consumers Union’s Defend Your Dollars campaign (www.DefendYourDollars.org) “Overdraft loan programs are an expensive and abusive form of credit that costs consumers billions of dollars every year. Don’t get fooled into signing up for debit overdraft. Since you will still face overdraft loan fees for overdrafts caused by checks and automatic debits, check with your bank about cheaper alternatives to these high cost loans.”
The rules are changing because many banks have automatically enrolled their customers in so-called “overdraft protection” programs. Automatic fee-based overdraft programs have been a lucrative source of income for banks so they haven’t had a strong incentive to sell lower cost services, such as linked accounts or lines of credit.
Banks collect an estimated $10.5 billion in fees from overdrafts triggered by debit and ATM transactions. The FDIC has estimated that the median fee for overdrafts is $27 even though overdrafts triggered by debit transactions have an average value of only $20. By contrast, the FDIC has found that the median fee to cover an overdraft from a linked account is $5.
Hillebrand offered a final word of caution and advice for consumers, “Read your mail and watch out for new fees as banks try to make up for some of the money that they won’t be able to get from debit overdrafts. Move your money if you don’t like the way your bank is treating you.”
Consumers Union has tips on how to move your money safely at: http://www.defendyourdollars.org/2010/04/moving_your_money_here_are_som.html
415-431-6747, ext 126 (office)