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A battered U.S. economy may prompt federal agencies to enact proposed regulations regarding overdraft practices that the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration introduced in May.The agencies proposed two rules. One would allow bank customers to opt out of automatic overdraft programs in which banks charge high fees to checking checking-account holders who overdraw their accounts.
Another proposal would prohibit "banks from imposing a fee when the account is overdrawn solely because a hold was placed on funds in the consumer's deposit account." Banks place holds when the previous payment transaction is still being settled.
The Federal Reserve Board is expected to reintroduce the proposal for public comment soon, says Nessa Feddis, senior federal counsel for government relations for the Washington, D.C.-based American Bankers Association.
Feddis expects the Federal Reserve Board of Governors to approve the proposal after the comment period, which usually is 30 to 60 days.
The Office of Thrift Supervision regulates state and federally chartered savings and loans, and the National Credit Union Administration oversees federally and most state-chartered credit unions.
The Federal Reserve is the nation's central banking system.
Although the nation's financial crisis has brought a lot of pain to consumers, it has spurred the agencies into an action that will benefit working men and women.
"Banks will be asked to allow customers to opt out or in to those programs and also to provide better disclosures about what those programs entail and what the fees are," Eva Weber, an analyst for Boston-based Aite Group, tells ATM&Debit News.
Banks are not fretting the proposal because few customers are opting out of overdraft programs, Feddis says.
"I think most people appreciate having their overdrafts paid," she says, noting banks reap the benefits from overdraft fees.
The Federal Deposit Insurance Corp. recently released survey data that suggest most banks automatically enroll customers into overdraft programs that impose overdraft fees.
In 2006, surveyed banks raked in $1.97 billion in overdraft-related fees, the survey found.
The FDIC says the study population involved a "random sample" of 462 institutions from the 1,171 FDIC-supervised financial institutions that had been scheduled for on-site examinations from May through December 2007. The survey also included FDIC-supervised institutions that had at least $5 billion in assets. Thirty-nine of the 462 institutions submitted transaction data for the survey. The FDIC released the survey results last week.
The survey found ATM and debit card transactions are the most most-frequent cause of overdrafts.
Eighty-one percent of the 462 FDIC-supervised banks surveyed use automatic overdraft programs that allow ATM and point-of-sale debit transactions to overdraw accounts.
Most banks (88.8% of banks for POS-debit card transactions and 70.7% for ATMs) alert customers of nonsufficient-fund transactions only after they complete the transactions. Some banks (7.9% for POS-debit transactions and 23.5% for ATMs) inform consumers they would overdraw their accounts before completing the transactions, enabling customers to cancel the transactions and avoid the fees.
Most automated overdraft fees bank assess range from $10 to $38, with the average fee of $27, say industry sources.
"One of the key issues for banks down the road is if they will be required to disclose whether a transaction will go over the customer's bank-account limit at the point of sale [or ATM]," Weber says.
Such a regulation would eat into any profit banks gain from overdraft fees, she adds.
Ultimately, consumers have the final say in overdraft fees, says one observer.
"That's something they can easily avoid," says Greg McBride, a senior analyst for Bankrate.com, consumer banking Web site based in North Palm Beach, Fla.
But some of the numbers say otherwise.
Although 75% of consumers' accounts from the group of 39 banks that provided transaction data to the FDIC had nonsufficient-fund transactions during 2006, almost 12% of consumer accounts had one to four nonsufficient fund transactions, according to the report. Another 5% had five to nine nonsufficient- fund transactions, 4% had 10 to 19 nonsufficient fund transactions, and 4.9% had 20 or more nonsufficient-fund transactions.
"Those are the consumers that have to do a better job of managing their money and making better financial decisions because it's costing them an arm and a leg." McBride says. ATM
