This week The New York Times published an editorial advocating some customer-centric reforms to debit cards just in time for the holiday season:
A 2009 law shields consumers from the worst predations of the credit card companies. It requires card issuers to give a 45-day notice before raising interest rates, says late charges and other penalties must be "reasonable and proportional" and that the companies clearly show late fees and other facts, such as how long it would take to pay off a balance if less than the full amount is remitted. Debit card and checking customers need similar protections.
The editorial goes on to push a list of debit card reforms put together by the Pew Health Group designed to provide that protection:
- Banks should be required to provide information about checking account terms, conditions and fees in a concise, easy-to-read format. Pew has developed a model disclosure box that provides this information.
- Banks should be required to provide accountholders with clear, comprehensive pricing information for all available overdraft options so that a customer can make the best choice among overdraft options, including choosing not to provide affirmative consent -- or "opt in" -- for any overdraft coverage.
- Overdraft penalty fees should be reasonable and proportional to the bank's costs in providing the overdraft loan. Regulators should monitor overdraft transfer fees and impose similar reasonable and proportional requirements if it appears that they are becoming so disproportionate as to suggest that they have become penalty fees as well.
- Banks should be required to post deposits and withdrawals in a fully disclosed, objective and neutral manner that does not maximize overdraft fees, such as in chronological order.
These all look like good reforms, although I think the need for them is less acute now that folks have to opt in to courtesy overdraft to get burned with overdraft fees for debit purchases.
Whether they're likely to be enacted anytime soon is another question altogether. This looks like a job for the Consumer Financial Protection Bureau, which is empowered to create and enforce rules exactly like the ones Pew is advocating here. Unfortunately, the CFPB still doesn't have a confirmed director, which it needs one to make new rules, and doesn't look likely to have one anytime soon. Senate Republicans have blocked the confirmation of nominee Richard Cordray, and they don't seem any closer to changing their stance than they were when he was nominated in July.
Absent new rules, there's a foolproof way that already exists to immunize yourself from courtesy overdraft fees: Don't opt in. Changes to Federal Reserve rules this year prohibited banks from charging customers overdraft fees on debit purchases unless they sign a piece of paper from their bank saying it's ok. For most people, doing so would be a big mistake.
Sure, it's nice to know your debit card won't be rejected at the register, but is that really worth throwing yourself into a system designed to rack up hundreds of dollars in fees with a few debit-card missteps?
For most people, a much better option is just letting their card get rejected at the register or the restaurant, swallow their pride, and make the purchase with a credit card or other form of payment.
What do you think? Are these rules necessary to protect debit card users? Have you opted in to debit card overdraft?