Federal Reserve Board Issues New Rules On Bank Overdrafts

Banks Will Be Required to Get Opt-In From Customers as Congress Considers Even
Tougher Protections

WASHINGTON, Nov. 12 /PRNewswire-USNewswire/ -- Under new regulations just
announced by the Federal Reserve, banks will no longer be allowed to
automatically enroll their customers in expensive overdraft loan programs.
Banks will be required to get their customers' permission first before they
can charge expensive fees when debit and ATM card transactions trigger an
overdraft.

The Fed's new rules are a positive step for consumers but proposals in
Congress would provide even stronger protections, according to Consumers
Union, the nonprofit publisher of Consumer Reports.

"The Fed should be applauded for ending automatic enrollment in costly
overdraft programs that cost consumers billions of dollars in fees every
year," said Lauren Bowne, staff attorney for Consumers Union. "Soon banks
will have to persuade their customers that these overdraft programs are
beneficial compared to other lower cost alternatives."

Most banks automatically enroll their customers in so-called 'overdraft
protection' programs, which are really high-cost loans that generate billions
of dollars in excessive fees every year. Banks are expected to collect more
than $38 billion in fees from overdrafts triggered by debit and check
transactions this year.

Debit card overdrafts could be prevented with a simple warning that there are
not enough funds in the account, or by declining the transaction. Instead,
most banks let these transactions go through and charge consumers a fee for
each overdraft. The FDIC found that the median fee for overdrafts is $27 even
though overdrafts triggered by debit transactions have an average value of
only $20.

Automatic fee-based overdraft programs are the most expensive option for
consumers so banks don't have an incentive to sell lower cost services, such
as linked accounts or lines of credit. The FDIC has concluded that the fees
assessed for these other types of programs are significantly lower than for
automatic overdraft loan programs.

Consumers Union supports efforts in Congress to enact additional protections
for consumers to limit abusive overdraft practices by banks. Legislation
recently introduced in the House and Senate would limit banks to charging one
overdraft fee per month for a total of six per year; prohibit banks from
manipulating the processing of transactions to increase overdrafts, and
clarify that banks must clearly disclose the cost of overdraft fees as
required under the Truth in Lending Act.

"The Fed's new rules are a big step forward that will give consumers more
choice and protect them from excessive overdraft fees," said Pam Banks, policy
counsel for Consumer Union. "But more protections are needed to ensure that
consumers who decide to opt-in to overdraft loan programs aren't subject to
excessive fees and other abusive practices."

SOURCE Consumers Union

Michael McCauley, +1-415-431-6747, ext 126, or David Butler, +1-202-462-6262