WASHINGTON, D.C. - Starting today, a new federal rule will give consumers more control over costly "overdraft fees." U.S. Sen. Sherrod Brown (D-OH) alerted Ohioans to the new rule which will prohibit financial institutions from charging consumers fees for paying overdrafts unless a consumer consents to the overdraft protection service.
"This is about giving Ohio consumers more control over their finances," Brown said. "Overdraft protection programs should be a choice for consumers, not a way to penalize them without their knowledge. Taxpayers helped stabilize the financial services industry - big banks should not return the favor by slamming consumers with billions of dollars in overdraft fees. This rule puts consumers first and allows them to make informed decisions about their accounts."
So-called "overdraft protection programs" enable customers to overdraw their accounts, without their knowledge, when they make debit card purchases, electronic transfers, ATM withdrawals or use checks. Account holders are often enrolled in the programs without their consent and many banks will slap customers with fees of upwards of $30 for this "courtesy" even if their account is only overdrawn by a few cents. Banks' software also re-orders transactions to place the largest transactions first, increasing the likelihood and frequency of overdraft transactions.
The final rules will give all consumers a choice between opting-in to the overdraft protection plan or having their purchases denied if they lack sufficient funds. Under the new rules, issued by the Federal Reserve, financial institutions will not be able to discriminate against consumers who do not opt in - these consumers must be offered the same account terms, conditions, and features (including pricing) as consumers enrolled in overdraft protection program. Financial institutions would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions for consumers participating in the protection program. For more information on the Federal Reserve's final rules, click here.
In October 2009, Brown cosponsored The Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act which was introduced to rein in abusive fees, give customers greater choice, and bring greater transparency to these programs.
It is estimated that banks stand to collect a record $38.5 billion in fees for customer overdrafts each year. The most cash-strapped customers are the hardest hit, with 90 per cent of overdraft fees coming from 10 percent of checking account holders. According to the Center for Responsible Lending, banks collect nearly $1 billion per year in overdraft fees from young adults and $4.5 billion from senior citizens.