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November 12th, 2009

Fed Cracks Down on Overdraft Fees



As part of an effort to step up consumer protection against things like excessive fees, the Fed announced a final rule, beginning in mid-2010, that will prohibit banks and credit unions from charging overdraft fees unless their customers agree to overdraft protection. As reported by the Wall Street Journal, banks and credit unions make between $25 billion and $38 billion a year on overdraft fees.

Customers must decide whether or not to “opt in” to protection. Let’s say you’re attempting to make a purchase that would over draft your account. If you opt to have protection, your transaction goes through, but you’re hit with a fee. If you opt out of the program, your transaction will of course be denied on the spot.

Here are some of the particulars:

The final Fed rules will force banks to provide the same terms, including prices, for consumers who decline overdraft protection. The rules take effect July 1. Consumers who decline to join a program may be denied access to cash at an ATM or have their debit-card transactions rejected, the Fed said.

The rules won’t apply to printed checks or regularly recurring debits from checking accounts, a Federal Reserve official said in a background briefing conference call today. Those transactions will be handled differently because people want those payments, which might include rent or utilities, to go through without delay, the Fed official said.

For online transactions, those using a debit-card number would be covered under the rules, the Fed officials said. Payments using a checking account number wouldn’t be covered, the officials said.

“It’s more of kind of an informed consent,” said HSH VP Keith Gumbinger. “It’s important to know whether you have this coverage or not, how much it costs and under what circumstances you’ll be charged.”

In the two-year span between 2006 and 2008, the amount of money that banks and credit unions collected from overdraft fees alone increased by 35%. Is this because we’re over drafting more, or were banks charging higher fees? The answer is both.

As long as you’re closely tied to your finances and you know exactly how much money you have available, there may be no need for you to opt into an overdraft agreement.

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4 Responses to “Fed Cracks Down on Overdraft Fees”

  1. RonD Says: November 12th, 2009 at 11:52 pm

    Some how, some way you will continue to pay a raft of bank fees.


  2. Tim Manni Says: November 13th, 2009 at 11:07 am


    Thanks for commenting. I agree, banks will always find a way to charge us fees — it’s part of their business model.

    Hope to hear from you again soon, thanks again,

  3. Stephen Says: November 13th, 2009 at 12:49 pm

    I think this is the correct way

  4. Tim Manni Says: November 13th, 2009 at 3:09 pm


    Thanks for sharing your opinion — it’s always welcomed here!


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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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