Earlier this summer I wrote about my friend whose bank had charged him $500 in penalties for a $15 overdraft on his debit card. This scam is unfortunately widespread among major US banks. Consumers aren’t notified that their debit card is overdrawn, so that the bank can “lend” them money, without their knowledge or consent, at an effective rate of 3,000+ percent. The policy authorizing the bank to do this is hidden in confusing boilerplate in the debit card application.
Now Bloomberg.com reports that help may be on the way from the Federal Reserve. There’s also legislation pending in the House. Contact your representatives and ask them to support it:
The Federal Reserve will prohibit banks from charging overdraft fees on automated teller machines or debit cards, unless a customer has agreed to pay extra charges for exceeding account balances.
Financial companies will have to explain overdraft programs and fees, as well as choices available to consumers, the Fed said today in a statement announcing a rule that takes effect next year. Lenders collected almost $37 billion in overdraft fees last year, according to research firm Moebs Services Inc.
“The final overdraft rules represent an important step forward in consumer protection,” Federal Reserve Chairman Ben S. Bernanke said in the statement. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd have separately introduced legislation that would restrict banks’ ability to charge overdraft fees. Both bills would permit one overdraft fee a month or six in a year.
Giving consumers a choice is important, “but we need to do far more to protect customers from abusive bank products,” Dodd said today in a statement. “We still need to stop the excessive fees, repeated charges, lax notifications and processing manipulation” in overdraft-protection programs.
Read the whole story here.