Washington Still Wants Additional Overdraft Rules

The Federal Reserve Board yesterday released a rule that would force banks to get customers' permission before enrolling them in overdraft-protection programs, but it did little to satisfy lawmakers who want to go even further, reports CardLine sister publication American Banker. While top leaders of the House and Senate banking committees have pushed bills that would require customers to opt in to overdraft protection, they also are seeking other restrictions, including monthly and yearly limits on overdraft-related fees. "We need to do far more to protect customers from abusive bank products," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who has scheduled a hearing Tuesday on the issue. "We still need to stop the excessive fees, repeated charges, lax notification and processing manipulation that have become standard in these so-called overdraft 'protection' programs." Dodd's sentiment reflects the deep unpopularity of the Fed in Congress, even as it goes further to protect consumers than it has in decades. The overdraft-protection rule goes into effect on July 1 and covers transactions conducted at ATMs and at the point of sale. Banks would be prohibited from offering different terms or conditions on accounts for customers who decide to forgo the program. Additionally, customers who decide to take advantage of overdraft protection  still could decide to reject the coverage at any point. Bankers, arguing that overdraft protection is actually a service for its customers, had pressed the Fed to embrace a rule that would let them instead give customers a chance to opt out of such coverage, betting that would have resulted in fewer accounts without protection. Industry representatives acknowledged their disappointment Thursday with the Fed rule but seemed ready to move on. "In the end, we could live with it," says Scott Talbott, a senior vice president with the Financial Services Roundtable. That is likely because bills circulating on Capitol Hill could be far worse for the industry. Proposals in the House and Senate would require fees to be proportional with the cost a bank incurs during an overdraft. They would also bar banks from imposing an overdraft more than once per month and six times per year. Under the proposals, customers would see a prompt on the screen of their ATM alerting them that their transaction could result in an overdraft, and banks could not manipulate the order of clearing checks in a way that can rack up fees.