It's About Time! - Fed to regulate overdraft fees - from WSJ

[jlima]

It's about time! An ATM now has to ask you if you agree to an overdraft fee.This is from the Wall Street Journal:

Fed Slaps Curbs on Overdraft Fees

WASHINGTON -- The Federal Reserve imposed rules Thursday making it harder for banks to hit customers with fees for overdrawing their accounts, in the latest crackdown from the government that could curtail a major revenue stream for financial institutions.

The Fed's policy requires customers to opt in to "overdraft protection" programs, meaning they would have to agree to pay a fee any time they overdraw their accounts at automated-teller machines or using a debit card. If they don't agree, any effort to withdraw money would likely be rejected if it overdrew the account. Currently, banks can honor a withdrawal and levy a fee on the customer for becoming overdrawn.

Overdraft fees can be sizable and add up. Sometimes customers who overdraw their accounts by just a few dollars are hit with $30 fees for each additional transaction. Banks bring in from $25 billion and $38 billion a year when customers overdraw their accounts, Fed officials said.

The move comes after a prolonged fight between the banking industry and consumer groups over such fees. Banks have argued they provide consumers a service, allowing them to temporarily become overdrawn, while consumer groups have charged that the fees are unreasonably high. Bank regulators had largely allowed banks leeway in this area, making the Fed's move a major policy change.

Still, the central bank stopped short of restrictions pushed by some Democrats and consumer groups. The Fed exempted bounced-check fees from its new policy. It also refrained from crafting limits on how many times each day customers can be charged.

Some analysts said the Fed's rule could lead banks to make up the lose revenue by charging for other services, such as checking accounts. Perhaps in anticipation of this shift, the Fed prohibited banks from charging higher fees to customers who don't want overdraft protection. The new rules go into effect July 1.

Congress and the central bank in tandem have placed similar constraints on credit-card and mortgage fees. The Fed is under pressure in this area, with congressional and White House proposals aiming to strip it of powers to write consumer-protection rules, and has recently beefed up its efforts.

 

[minnie1928]

Keep in mind, that if banks don't pay the check then it will bounce and you may incur a bounced check charge from the company trying to cash the check (like your mortgage co, utility, department store, etc.). So, you may switch from paying Paul to paying Peter when it's all said and done.

 

[Cheshire Figment]

Note that this applies to ATM withdrawls and Debit Cards. It does not apply to checks. Usually debit card purchases are small amounts. And at an ATM you just can't get the cash if you don't have it in your account.

A key thing that is needed is a requirement in overnight check processing that depoists be credited first and then checks charged with the smallest first and largest last.

 

[minnie1928]

Note that this applies to ATM withdrawls and Debit Cards. It does not apply to checks. Usually debit card purchases are small amounts. And at an ATM you just can't get the cash if you don't have it in your account.

A key thing that is needed is a requirement in overnight check processing that depoists be credited first and then checks charged with the smallest first and largest last.

Ahhh...didn't notice it applied to only card transactions, thanks for pointing that out!

Your "key" is available, but you have to shop for a bank that processes this way. When I worked for a bank we discussed processing order more times than I can count (and I'm an accountant!!). There are pros/cons to every method for the customer. For example, you could process in check # order, because that's how the customer wrote the check/debit transaction. You could process small debits first so that more items get paid before the fees kick in. You could process large checks first because those "in theory" would be more important (think mortgage payment vs. pack of cigarettes at the 7 Eleven).

I worked for a small, community bank and I honestly can't remember which method we were using when I left. But, I can tell you that HOURS of discussion were invested in this topic and it revolved around what was best for the customer. I know that banks are getting a bad rap here of late, but not all banks/bankers are evil.

 

[fatuhiva]

A key thing that is needed is a requirement in overnight check processing that depoists be credited first and then checks charged with the smallest first and largest last.

I believe it already is a law that deposits must be processed first before checks. I was told that many years ago by a bank. I don't know about the order of checks, but I'm sure you'll get many different opinions on what the order should be.

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

 

[minnie1928]

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

Totally agree!!

 

[3boymthr]

I believe it already is a law that deposits must be processed first before checks. I was told that many years ago by a bank. I don't know about the order of checks, but I'm sure you'll get many different opinions on what the order should be.

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

Yes, but sometimes the left hand doesn't know what the right hand is doing, or in my case last month, I processed a transaction on my debit card, the company from whom I purchased my item put an additional hold on my account for an additional $300 - twice the amount of my transaction, and at the same time an other company put a hold of $250 on my account at the same time again twice the amount of my transaction, effectively withdrawing $550 from my available funds, at least temporarily. Yeah, I bounced $279 worth of checks. I have overdraft protection so I didn't incur fees from the other companies, but I was knew how much was in my account, I just DIDN'T know $550 was not available because those companies had placed holds on my account.

 

[dvcgirl]

I believe it already is a law that deposits must be processed first before checks. I was told that many years ago by a bank. I don't know about the order of checks, but I'm sure you'll get many different opinions on what the order should be.

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

Absolutely agree, people should balance their checkbooks and know how much money that they have.

But did you know that there are banks out there (monster mega banks too) that have actual software that is set up to deposit checks in an over-drafted account in an order to reap them the most in overdraft fees?

The banks made 16 Billion in overdraft fees in 1999. By 2008, that number was 38 Billion. Do you think that everyone just got *really* bad with balancing their checkbooks? No. Sure, people did bounce checks in many of those cases, but the banks set it up so that they maximize every penny in fees that they can get out of that person.

This is why we should have big issues with the big banks. This is what they have become.

 

[Mrs.Reese]

Absolutely agree, people should balance their checkbooks and know how much money that they have.

But did you know that there are banks out there (monster mega banks too) that have actual software that is set up to deposit checks in an over-drafted account in an order to reap them the most in overdraft fees?

The banks made 16 Billion in overdraft fees in 1999. By 2008, that number was 38 Billion. Do you think that everyone just got *really* bad with balancing their checkbooks? No. Sure, people did bounce checks in many of those cases, but the banks set it up so that they maximize every penny in fees that they can get out of that person.

This is why we should have big issues with the big banks. This is what they have become.

This whole make as much as money as possible mentality the big ones have is exactly why we switched to our local credit union. We once had around $200 in overdraft fees because a company placed a hold on our account for double what we had paid. Perhaps this will convince more people to look at their smaller hometown banks where gasp! you can actually reach a real live person when you call.

 

[happygirl]

I think the banks need to overdarft protection any way. It seems like a dangerous slop to me

 

[coolbeans]

I will be sooooooooooo excited when this goes into effect. I work at a bank and it's very difficult to explain to a customer that has overdrawn their account by literally pennies that the fee was in their benefit (item paid as opposed to it being returned, paying one fee rather than two fees..etc..).. yippee!!!

 

[MamaKate]

When they say in effect July 1st do they mean 2010?

 

[boufa]

Some notes... 1) yes, 2010 for implementation. It can be a process to reprogram computers, and test them so that they are right etc. and 2) Banks are a For Profit business. I agree that they must use common sense to ensure fairness in their policies and their fees. However, every penny that they cannot make in one manner, they will make in another way. That is the way of the world. Complain about it, but not going to change it. Look at the credit card law and how that is messing with things.

Just be wary, that we all may be paying for the money they cannot collect from some. Overall I think that this change is a good thing, I just wonder where new fees will pop up to cover the losses.

 

[omghidanielle]

This sounds good and all, but...

I will be sooooooooooo excited when this goes into effect. I work at a bank and it's very difficult to explain to a customer that has overdrawn their account by literally pennies that the fee was in their benefit (item paid as opposed to it being returned, paying one fee rather than two fees..etc..).. yippee!!!

I'm in the same boat; however, I work at a non-profit CU and we are pretty lenient when it comes to refunding fees as one time courtesies (and I mean one time...with a full explanation.). I've noticed that after you go through explaining the pros and cons of the program with the customer, they still DO NOT want to opt out. We will offer ALL fees refunded if the customer chooses to opt out, and 9 times out of 10, they refuse. Our fees aren't very high, either, $19 for checks/ACHs, $5 for debits, yet people get very upset over them and threaten to go to another institution. I don't know how other institutions handle these types of complaints, or how high their fees are, but I feel like people just want to vent about being charged, but aren't keen on the idea of having a possible bounced check.

Yeah, you do run into the occasional person who's checking account was held up by a hotel charge that was never or double processed, or someone who forgot they wrote that birthday check to their sister, but you also run into the moron with $0.26 in his account, trying to buy a PS3, because overdraft allows him to.

This is going to give me a headache hahahahah

 

[disneymarie]

Note that this applies to ATM withdrawls and Debit Cards. It does not apply to checks. Usually debit card purchases are small amounts. And at an ATM you just can't get the cash if you don't have it in your account.

A key thing that is needed is a requirement in overnight check processing that depoists be credited first and then checks charged with the smallest first and largest last.

I gave a heads up on this practice after I found out,
THE BANK WILL ALLOW A WITHDRAWAL, they call it a courtsey.


The bank allowed two unauthorized transactions, THEN allowed multiple debit transactions, creating $39 fee on each and the unauthorized,

No one new of this sneaky practice and I lost over $1,000 as I filed a complaint and had to fight it.

I immediatly had my card blocked.....to opt out, of this Generous act. FOR ONE day they locked the card!
AAA tried to auto re-enroll me for an upgrade after I went into the office and stated I did not want it...They put it through anyway....I never did this. If I let it expire, they gave me another month on a renewal....
The bank, left it go through, BUT, I did not know.....Even though I opted out, AGAIN this put my account in negitive, I was able to make a $40 withdrawal in cash, a $5 lunch for grandon at BKing, and pick up pizza as transaction....I did not know the bank did this until almost 9 days latter I got the letter for the OD and courtesy fees.......My entire Social Security check was gone to cover it.

I have a case number for the complaint I filed.....
Also THis bank stated to FDIC I Should have OD protection, I DID! They state I did not.
Bank Got threatening over closing my account.

To the bank I stated; I left enough money to cover two checks I wrote and when they cleared I would close the account.

THis national bank closed the account as soon as I was off the phone, sent the checks back as a closed account.

One check they are trying to charge me under the criminal code for knowingly writting a bad check. I am in meetings with the DA over it. This created a living He11.

We do all our banking at the credit union now. The other account, we had for 48 years......

Now I have 2 additional complaints filed attached to the original case no,

 

[luvsJack]

I believe it already is a law that deposits must be processed first before checks. I was told that many years ago by a bank. I don't know about the order of checks, but I'm sure you'll get many different opinions on what the order should be.

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

If that is the law, then all banks do not follow it; unless that law was changed within just a year or two ago. My previous bank did not process deposits first, the one I am with now does.



My bank charges the same fee whether they cover the check or not, so I am a bit confused here.
They will allow the check (or debit payment) through up to a certain amount (no overdraft protection loan) and they will charge $29 per check. After that amount they send the check (or debit payment) back and still charge $29 (I have never gotten to that point, thank goodness). I don't use the ATM so I have no clue what they do for that. So does this law change what they do?

If I mess up, I would rather pay the $29 and know the check will be covered rather than it be sent back. I would hate for my light bill to get sent back and come home to no lights!

 

[NYCDiane]

I'm not saying banks should charge outrageous fees, but people should also be responsible for knowing how much money is in their checking account before writing a check or making a debit payment/ATM withdrawal. A checking account is not a credit card.

I completely agree with this!! How in the world can you possibly "overdraft" your account? I keep track of every single penny that goes in/out of my account and have never, ever overdrafted my account. If you know you put in $500, you also know you can't spend $501, right? If you deposit a check, you know the check has to clear before the funds are availabel, right?

If you have a hard time keeping track of your account, then you should have an "overdraft account" linked to your checking account. When I was with WaMu many years ago, they had an "automatic savings" thing --- when your direct deposit from you job came in, they would automatically direct $25 of that into a savings account that was linked to your checking account and it also served as overdraft protection. I never needed the overdraft protection and the savings really added up over time.

 

[monarchsfan16]

Anyone else thinking that since they have to do away with overdraft fees, the days of free checking accounts are soon to be gone?

 

[happygirl]

Anyone else thinking that since they have to do away with overdraft fees, the days of free checking accounts are soon to be gone?

I can see that happening,as well as them doing away with overdraft protection all together

 

[dvcgirl]

I can see that happening,as well as them doing away with overdraft protection all together

Well, maybe not completely, but that's the direction that we're moving in. Away from "free checking" and "no-annual fee" credit cards, back to "fee checking" and "annual fees".

In all honesty though, isn't that better than all of these "gotcha" charges. I feel the same way about what the airlines are doing. Charges for baggage, aisle seats, fuel surcharges on and on. It sets up an adversarial relationship with your customers from the get-go. Just charge a flat fee where you can actually turn a profit.