The New York Times has posted an article about new regulations the FDIC, which monitors 4800 banks, has put on banks to monitor the debit card industry. Congress set an excellent example in 2009 with the new credit card law that the FDIC could have followed to address the outrageous overdraft fees some banks charge on their debit cards.
The credit card law says that late charges or other penalties have to be “reasonable and proportional,” which would have been a good place for the FDIC to start with overdraft fees. Some banks charge as much as $35 per transaction, sometimes several times a day, for overdraft fees. This only succeeds in driving the consumer even further in the hole over a purchase that can be as small as a newspaper.
An analysis issued last year by the Center for Responsible Lending found that it was “common policy among banks” to process the largest transactions first, regardless of when purchases were made, to increase overdrafts.
Last year the Federal Reserve began to require that banks customers to opt in to overdraft protection plans before overdrawing, but it wasn’t successful. Some banks aren’t honest about overdraft protection plans and don’t tell consumers all the details such as how much it costs or even how the system works. This means that debit card holders are being exposed to false offers or “predations” that credit card holders are protected from.
The new F.D.I.C. rules require banks to clearly explain overdraft costs. Most important, if a customer is charged a fee for overdrawing his account more than 6 times in a 12-month period, the bank must offer a less costly alternative, like a reasonably priced line of credit or linking the card to a savings account.
Banks are starting to worry about their profits, and some are even threatening to change from the FDIC to another, less strict regulator.
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