Banking

Financial institutions will no longer be able to charge customers overdraft fees on automated teller machine (ATM) and one-time debit card transactions without the customer's express consent under new rules that are effective on July 1, 2010.

Before giving permission to pay overdraft fees, the consumer must be provided a notice that explains the financial institution's overdraft services, including the fees associated with the service, and the consumer's choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.

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

The results of consumer tests conducted by the Federal Reserve Board show that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they expressly opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.

Rules also apply to those not opting in
To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers 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. For consumers who do not opt in, the institution would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions.

"Overdraft fees can be costly," said Federal Reserve Gov. Elizabeth A. Duke, the chair 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."

November 25, 2009