Banks Now Need Customer Consent Before Levying Overdraft Fees on ATMs and Debit Cards

The Federal Reserve on Thursday announced final rules that prohibit banks from automatically charging overdraft fees on ATM and debit card transactions. Before a fee can be charged, customers must consent or agree to the charge in return for being allowed to withdraw money. So, let's explain a likely scenario.

The Federal Reserve on Thursday announced final rules that prohibit banks from automatically charging overdraft fees on ATM and debit card transactions. Before overdraft fees can be charged, customers must consent or opt-in to overdraft protection on these types of transactions.

The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

This is good for consumers but potentially ruinous for banks. It's estimated that banks make $27 billion per year on overdrafts. Time will tell if banks make up the money by levying fees on other products. Undoubtedly, banks will ramp up their overdraft protection marketing in order to get a large percentage of their consumers to opt-in. The regulations prevent banks from discriminating against those customers who do not opt-in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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