The government has plenty to say about the way banks should administer overdraft fees. The question is, do banks want to listen?The Federal Deposit Insurance Corporation (FDIC), which helps insure and govern banks, issued suggestions recently on how banks should treat overdraft fees. This came about a month after the government’s Dodd-Frank Wall Street Reform and Consumer Protection Act forced banks to give customers the choice to opt-in or opt-out of overdraft protection plans.

Allowing customers this choice was a positive step from a consumer’s perspective, as it gave consumers the ability to monitor their banks’ activities more closely. Banks won’t see the same benefits, as they stand to lose money as customers opt out of the fees, which average $27, according to the National Foundation for Credit Counseling.



FDIC Pushes for Responsibility From Banks

The corporation suggested in its release that banks “monitor accounts and take meaningful and effective action to limit use by consumers as a form of short-term, high-cost credit.” It said banks should think about giving frequent overdraft customers (six times or more per year) to pursue alternative accounts or plans that would come with fewer penalties. Some of these options could include overdraft lines of credit, linked savings accounts or small loans to bolster their finances. The bottom line of the FDIC’s statement is that a bank should not treat its overdraft protection program as a way to take money from customers, but rather an optional, transparent agreement that customers enter with complete understanding.

To read the FDIC’s suggestions, click here.

Banks Fight Back

Banks are resisting the government’s anti-fee push. Since only 26% of consumers would willingly opt into overdraft protection plans, banks could lose a substantial source of income.

On top of that, the government is now suggesting that banks begin processing customers’ transactions chronologically to lessen the chances of accidental overdrafts. Many big banks do not process withdrawals chronologically, which can be confusing for customers and result in extra overdrafts. Wells Fargo recently took a $200 million hit in federal court because of its overdraft practices, but that didn’t stop Bank of America, Chase and Citibank from telling The Los Angeles Times that they had no plans to change their policies. According to The Times, Wells Fargo brought in $1.4 billion on overdraft fees last year alone, making its $200 million penalty seem like pocket change.

What do you think of overdraft protection? Would you opt-in or opt-out? Let us know in the comments section:

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  • Jaycie5050

    Dear Sir, I do agree that some banks are out of control with fees. However, I manage a small credit union which offers many options to avoid these fees. First of all we offer and overdraft line of credit, which posts the amount to a loan and no nsf fee is charged. You only pay and interest rate which is calculated daily on the unpaid balance. Secondly, we tie people's checking accounts to their savings account, so if an overdraft occurs it will transfer from you savings for a fee of $3.00, instead of $25.00. Thirdly, we only charge $25.00 which is below nsf fees of other financial institutions. The problem is we post our debit card transations through a batch process, which means a members balance is not updated immediately. What happens if a person makes a transaction on a Thursday for $400.00 and they had $400.00 in their account it would have pending transaction against that balance for 3 days. On Friday the transaction that occurred on Thursday would not get to us until possibly Monday or Tuesday of the next week. Since visa and mastercard rules only allow a transaction to be held against a member's account for 3 days. The $400 transaction that occurred on Thursday would fall off on Saturday on midnight. Now on Sunday, the member could go to an ATM machine and make a withdrawal or purchase for $400.00 and it would be approved. Once the next week comes and rolls around and all the transactions from Thursday and the weekend are finally posted the member's account is now overdrawn by $400.00. We cannot return the transaction as the member has already gotten the $400.00 from the ATM and now the member is overdrawn by $400.00. We then have to track the member down and try to recoop the funds.

  • information is power

    Dear Sir,

    I just want to clarify that the Dodd-Frank Wall Street Reform and Consumer Protection Act did not force banks to to give customers the choice to opt-in or opt-out of overdraft protection plans. This is required by Regulation E which pumulagates the Electronic Funds Transfer Act. The Regulation E rule became effective in January 2010 and financial institutions were required to comply July 1, 2010 for new customers and August 15, 2010 for existing customers.

    The Dodd-Frank Wall Street Reform and Consumer Protection Act does address interchange fees which will also be fall under Regulation E.

    I realize that most readers will not care which Act applie in this case but I am so tired of various news outlets providing incorrect information.