Advertisement
www.nytimes.com/2009/11/13...gulate.html
New Rules Would Restrict Overdraft Fees on Debit Cards
By STEPHEN LABATON
Published: November 12, 2009
WASHINGTON — The Federal Reserve announced new rules on Thursday that would prohibit banks and other issuers of debit cards from charging consumers overdraft fees in many instances without the permission of the cardholder.
The rules, which take effect next summer, come as Congress has been considering whether to impose similar restraints, as well as other legislation that would take away the Fed’s authority to regulate credit cards and mortgages and give it to a new consumer financial protection agency.
The rules are the latest in a series issued by the Fed in response to criticism that it did not move quickly and aggressively enough to root out deceptive and abusive consumer lending practices. Last year the Fed issued rules on predatory loans and abusive mortgage practices.
Under the rules announced on Thursday, consumers must be given a notice that explains the card policies, including fees. Without express permission from the consumer, the card issuer cannot charge for overdrafts at retail stores or A.T.M.’s. The disclosures are required to be made in simple and easy-to-understand notices that customers should soon be receiving.
The rules are aimed at reducing fees for more ordinary purchases, such as at bookstores or coffee shops, where the overdraft fee could be significantly larger than the purchase itself.
Fed officials said the new rules would not cover overdraft fees for checks because consumer studies showed that bank customers were more likely to accept such fees since checks were more typically used for more essential purchases. Nor will they cover overdrafts from recurring debit card transactions, such as to pay for utility or telephone bills that are set up in advance.
“The final overdraft rules represent an important step forward in consumer protection,” the Federal Reserve chairman, Ben S. Bernanke, said. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
Fed officials said that the banking industry receives $25 billion to $38 billion a year in overdraft fees, including fees for checks and electronic transactions not covered by the new rules.
Last month Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee, introduced legislation to limit the number of overdraft fees to one a month and to require a bank to seek permission from consumers to cover debit card and check purchases that would push their bank balance below zero. Under the proposal, banks would have to cap the number of overdrafts that they charge at six a year and require fees to be proportional to the cost of processing the overdraft.
On Tuesday, Mr. Dodd proposed a sweeping overhaul of the regulatory system that included consolidating bank regulators and creating a consumer financial protection agency that would take the Federal Reserve out of the business of regulating credit cards and mortgages.
The House Financial Services Committee has already approved similar legislation on the new consumer protection agency. The Obama administration has urged the creation of such an agency, which has been opposed by the bank industry.
“Overdraft fees can be costly,” said the Fed governor, Elizabeth A. Duke, chairwoman of the board’s committee on consumer and community affairs. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”
The rules will take effect for new cards on July 1. For existing accounts, issuers will not be able to charge overdraft fees without the permission of the cardholder after Aug. 15.
New Rules Would Restrict Overdraft Fees on Debit Cards
By STEPHEN LABATON
Published: November 12, 2009
WASHINGTON — The Federal Reserve announced new rules on Thursday that would prohibit banks and other issuers of debit cards from charging consumers overdraft fees in many instances without the permission of the cardholder.
The rules, which take effect next summer, come as Congress has been considering whether to impose similar restraints, as well as other legislation that would take away the Fed’s authority to regulate credit cards and mortgages and give it to a new consumer financial protection agency.
The rules are the latest in a series issued by the Fed in response to criticism that it did not move quickly and aggressively enough to root out deceptive and abusive consumer lending practices. Last year the Fed issued rules on predatory loans and abusive mortgage practices.
Under the rules announced on Thursday, consumers must be given a notice that explains the card policies, including fees. Without express permission from the consumer, the card issuer cannot charge for overdrafts at retail stores or A.T.M.’s. The disclosures are required to be made in simple and easy-to-understand notices that customers should soon be receiving.
The rules are aimed at reducing fees for more ordinary purchases, such as at bookstores or coffee shops, where the overdraft fee could be significantly larger than the purchase itself.
Fed officials said the new rules would not cover overdraft fees for checks because consumer studies showed that bank customers were more likely to accept such fees since checks were more typically used for more essential purchases. Nor will they cover overdrafts from recurring debit card transactions, such as to pay for utility or telephone bills that are set up in advance.
“The final overdraft rules represent an important step forward in consumer protection,” the Federal Reserve chairman, Ben S. Bernanke, said. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
Fed officials said that the banking industry receives $25 billion to $38 billion a year in overdraft fees, including fees for checks and electronic transactions not covered by the new rules.
Last month Senator Christopher J. Dodd, the Connecticut Democrat who heads the Senate Banking Committee, introduced legislation to limit the number of overdraft fees to one a month and to require a bank to seek permission from consumers to cover debit card and check purchases that would push their bank balance below zero. Under the proposal, banks would have to cap the number of overdrafts that they charge at six a year and require fees to be proportional to the cost of processing the overdraft.
On Tuesday, Mr. Dodd proposed a sweeping overhaul of the regulatory system that included consolidating bank regulators and creating a consumer financial protection agency that would take the Federal Reserve out of the business of regulating credit cards and mortgages.
The House Financial Services Committee has already approved similar legislation on the new consumer protection agency. The Obama administration has urged the creation of such an agency, which has been opposed by the bank industry.
“Overdraft fees can be costly,” said the Fed governor, Elizabeth A. Duke, chairwoman of the board’s committee on consumer and community affairs. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”
The rules will take effect for new cards on July 1. For existing accounts, issuers will not be able to charge overdraft fees without the permission of the cardholder after Aug. 15.
posted by:
|
California
|
Advertisement
Advertisement
-
Re: New Rules Would Restrict Overdraft Fees on Debit Cards
Thu, November 12, 2009 - 9:41 PMKabuki
-
Re: New Rules Would Restrict Overdraft Fees on Debit Cards
Fri, November 13, 2009 - 1:55 PMI haven't read up on the new laws pertaining to credit or debit cards, but the last time I spoke with the company I have my one credit card with, they gave me the choice whether or not I wanted them to allow overdrafts. If I opted to allow overdrafts, each one would cost me $29. If not, any attempt at using the card when it would take it over the limit would be denied. I chose the denial. Seems pretty simple to me. I like having the choice. -
-
Re: New Rules Would Restrict Overdraft Fees on Debit Cards
Fri, November 13, 2009 - 1:59 PMIf I were to get a card I would also make sure it would deny withdrawal if I did not have the reserves. But ideally the card companies would not have an option to fine for overdrafts, rather you simply dip you into the negative reflective of the amount overdrawn until repaid, or you are denied.
And measures against predatory card companies I also support. Hey, credit cards, leave those kids alone.
-
-
Re: New Rules Would Restrict Overdraft Fees on Debit Cards
Wed, November 25, 2009 - 6:51 AMWatch parts One through Six: www.pbs.org/wgbh/pages/f...itcards/view/
The Card Game
Part One: The Wizards of Consumer Lending
As credit card companies face rising public anger, new regulation from Washington and staggering new rates of default and bankruptcy, FRONTLINE correspondent Lowell Bergman investigates the future of the massive consumer loan industry and its impact on a fragile national economy.
In The Card Game, a follow-up to the Secret History of the Credit Card and a joint project with The New York Times, Bergman and the Times talk to industry insiders, lobbyists, politicians and consumer advocates as they square off over attempts to reform the way the industry has done business for decades.
"The card issuers could do anything they want," Robert McKinley, CEO of CardWeb.com, tells FRONTLINE of the industry's unchecked power over consumers. "They could change your interest rate. They could impose an annual fee. They could close your account." High interest rates along with more and more penalty fees drove up profits for the industry, Bergman finds, as the banks followed the lead of an aggressive upstart: Providian Bank. In an exclusive interview with FRONTLINE, former Providian CEO Shailesh Mehta tells Bergman how his company successfully targeted vulnerable low-income customers whom Providian called "the unbanked."
"They're lower-income people-bad credits, bankrupts, young credits, no credits," Mehta says. Providian also innovated by offering "free" credit cards that carried heavy hidden fees. "I used to use the word 'penalty pricing' or 'stealth pricing,'" Mehta tells FRONTLINE. "When people make the buying decision, they don't look at the penalty fees because they never believe they'll be late. They never believe they'll be over limit, right? ... Our business took off. ... We were making a billion dollars a year."
It took the economic collapse in the fall of 2008 to set the stage for potentially historic change in the consumer credit business. President Obama and his team pushed through a credit card reform bill in May, and they're now looking to establish a new Consumer Finance Protection Agency. But the banking and financial services industries contribute huge amounts of money to Congress -- and the jury is still out on whether the new regulations can pass. "It's a step in the right direction, but it's a modest step," says Harvard law professor Elizabeth Warren. "It's a set of very discrete new laws. And the credit industry instantly set to work on how they could run around them. By itself, that set of rules won't change the game."
"It's hard for them to get a bill through the U.S. Senate when the industry is pouring money into Washington," says Martin Eakes of the Center for Responsible Lending of the banks' political clout. "As Sen. [Dick] Durbin from Chicago recently said, 'the banks, even as unpopular as they are right now in this crisis, still own this place.'"
