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Consumer groups concerned about debit card overdraft regulations the Federal Reserve Board may enact this summer made their pleas for an opt-in approach during the final days of the public comment period that ended March 30.
"We feel the opt-in [option] is the necessary approach that will really protect the consumers from these high-cost [fees]," Lauren Zeichner Browne, staff attorney for Yonkers, N.Y.-based Consumers Union, tells ATM&Debit News. The company publishes Consumer Reports magazine.
Consumers Union bases its argument partly on a national poll Consumer Reports National Research conducted between Feb. 5 and 8. Most consumers, the poll found, do not understand how an overdraft program works. Some 39% of respondents believed their bank either would deny a debit card transaction or allow it to proceed without charging a fee if it would overdraw their account.
Almost half the respondents (48%) believed their ATM card would not work if they attempted to withdraw more money than was available in their account. The survey also found 66% of respondents "prefer to expressly authorize overdraft coverage."
The research center surveyed by phone 679 adults who reported having a checking account with an ATM or debit card.
Most automated overdraft fees bank assess range from $10 to $38, with the average fee of $27, industry sources say. In its most recent survey, the Federal Deposit Insurance Corp. found 462 financial institutions raked in $1.97 billion in overdraft-related fees.
Consumers Union included the results of the survey with a letter to the Federal Reserve, one of the federal agencies that proposed the regulations last May. The Office of Thrift Supervision, which regulates state and federally chartered savings-and-loans banks, and the National Credit Union Administration, which oversees federally and most state-chartered credit unions, also helped design the proposed regulations.
The agencies proposed two rules. One would enable bank customers to opt out of programs in which banks automatically charge fees to checking-account holders who overdraw their accounts.
The other proposal would prohibit "banks from imposing a fee when the account is overdrawn solely because a hold was placed on the funds in the consumer's deposit account." Banks place holds on funds until payment transactions settle, a policy they originally designed to avoid overdrawn accounts.
Consumer Union also urged the board to recognize fee-based overdraft loans are extensions of credit that should be subject to the Truth in Lending Act, a federal law Congress passed in 1968 to protect credit cardholders by requiring issuers to provide full disclosure of the lending agreement and associated costs, Browne says.
"The rates should be disclosed as an [annual percentage rate] rather than an infinite fee," Browne contends.
A Center For Responsible Lending-sponsored survey conducted by market research firm International Inc. produced similar results. Marco conducted the phone survey of 1,005 adults nationwide March 12 to 15.
Asked how they would like their bank to handle overdraft protection, 80% of respondents said banks should give their customers the option of protection.
The Durham, N.C.-based organization also submitted a letter with the survey results to the Fed, according to senior researcher Leslie Parrish. "We certainly hope the Fed and the banks support the opt-in measure," she says.
The comments the Fed receives will help shape the final language of the regulation, according to Nessa Feddis, senior federal counsel for government relations at the Washington-based American Bankers Association. "The Fed is actually pretty thoughtful, and they do take into account the comments and they do refine the proposal," she says.
But if the refined proposal is too different from what was originally proposed, or if the Fed failed to ask for a specific comment on something, then the regulation would be reproposed, Feddis adds. "But in this case, the Fed asked a lot of questions," she says.
Most consumer comments Feddis has read support the opt-in approach. But if the regulations remain as originally proposed, banks are not worried because few customers are opting out of overdraft programs, she says.
"Most people appreciate having their overdrafts paid," Feddis says. ATM
