Still worried about overdrafts on your checking account, despite recent Federal Reserve rules that require you to opt in to your bank's overdraft program for debit card purchases and ATM transactions before you can be charged?
If so, you'll be happy to know the Federal Deposit Insurance Corp is planning to further restrict checking account overdraft programs and the fees associated with them beyond the Federal Reserve rules that took effect Aug. 15. Those rules conspicuously left out paper checks and automated clearing house transactions, known as ACH, the kind often used for automatic bill pay.
The FDIC rules aim to tame overdrafts in those two areas primarily by extending the overdraft opt-in requirement to all types of checking account transactions, including paper checks, ACH bill pay transactions and others.
The FDIC rules would also require banks to stop clearing checks from largest to smallest, the current industry norm, instead requiring them to go by chronological order or check number. That's because clearing checks from largest to smallest can often result in higher bounced-check fees: The largest checks quickly deplete the customer's account, leaving each small check to trigger a fee.
For example, if you had $100 in your checking account, and wrote checks for $20, $40, $30 and $200 throughout the day, cashing them from largest to smallest would mean all four checks would trigger nonsufficient funds, or NSF, fees, because the $200 check would deplete the entire checking account before any of the smaller checks had a chance to clear. In contrast, cashing them in chronological order would mean only the final $200 check would trigger an NSF fee.
Some other proposed FDIC rules would require banks to:
- Institute daily limits on overdraft fees.
- Educate chronic overdrafters on overdraft alternatives.
- Make it easy for customers who've opted in to overdraft programs to back out.
Seeing as how overdraft fees have long been a big revenue stream for banks, they're unsurprisingly pretty miffed by the proposed FDIC restrictions. American Banker has a story this week on the pushback from community banks:
"Banks used to be considered 'For Profit' businesses but we are starting to wonder," said Clark A. Hervert, a vice president at First National Bank in Ord, an $85 million-asset institution in Ord, Neb., in a comment letter to the agency.
J. Eric T. Sandberg Jr., the president and chief executive officer of the Texas Bankers Association, said overdraft fees are not meant to "willfully and deliberately" take "advantage of their customers."
"I am very concerned with the notion that a bank, a for-profit enterprise with whom its customers have a contractual relationship, must limit the amount of fees that a customer could incur as a result of violating their depository contract -- i.e. the depository agreement setting out the customer's duty with regard to maintaining a positive account balance," Sandberg said in a Sept. 15 comment letter.
What do you think about the FDIC proposals? Will these new restrictions help consumers? Would they help you?