Federal Reserve Ruling On Overdraft Fees 3 Key Points

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By Larry Donaldson

Overdraft fees. The words strike fear and loathing into the hearts of bank customers everywhere Also called overdraft charges or NSF fees, they result whenever you make a charge, write a check or withdraw money from a checking account that has too low of a balance to cover the pending withdrawal.

Of course, in the old days of banking, when you didn’t have enough money in your account to cover a charge, your bank simply rejected it while you were still at the merchant. But, today we live in the era of overdraft protection programs. These cleverly-named programs protect the customer from being embarrassed at a store, restaurant, or gas pump for having too low of a balance to cover a charge.

At the same time, for over a decade these programs have also done a great job of “protecting” the profits of banks: to the tune of $25-$30 billion per year in the U.S. alone. In theory, these programs protect bank customers. But, the way they are operated by banks means that in reality they are slanted toward benefitting the banks.

A few years ago, the Fed (United States Federal Reserve) caught onto the scheme. A November 2009 Fed ruling was put into effect in the summer of 2010 to help protect consumers against overdraft protection programs. Here are the 3 key points on the Federal Reserve ruling on overdraft fees:

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1. The ruling affects the way in which banks can sign people up for overdraft protection programs:

Before the ruling took effect, new bank customers signing up for a checking account had to effectively raise their hand and say, “I do NOT want to enroll in your overdraft protection program.” This opt-out strategy meant that most customers – who sometimes were not even adequately made aware that they were even being automatically enrolled in the programs – just allowed themselves to be enrolled.

The trouble is, most customers do not realize that they can be in situations whereby, for example, in a single day of shopping they could make 5, 6, 7 or more charges against a too-low-balance checking account and incur $200 or more in overdraft charges in a single day.

The new Fed ruling forces banks to offer the programs instead as opt-in programs, meaning the customer has to actively show interest in and sign up for the program in order to enroll.

2. Under the new ruling, you cannot be discriminated against if you choose not to join their overdraft protection program:

The new Fed ruling offers other protections, as well. Specifically, a bank is prohibited from penalizing you in any way if you choose not to opt in to the said overdraft protection program.

3. The ruling does not limit banks from charging you overdraft fees:

Despite the needed and very important advances that this Fed ruling represents to bank customers everywhere, it unfortunately does not save a customer who does choose to enroll in the programs a single dime in overdraft fees. Meaning: those customers who want overdraft protection but not all of the crazy fees are back to square one.

Take these 3 key points regarding the Federal Reserve ruling on overdraft fees into account. Then, consider switching banks to one that will never charge you an overdraft fee, even if you overdraw your account.

About the Author: Find a list of no-overdraft-fee banks in your area at:

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This entry was posted on Wednesday, May 23rd, 2018 at 1:11 am and is filed under Loan Agreements. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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