New Debit Card Overdraft Law Would Change the Game Entirely

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Banks have grown accustomed to reaping in big bucks off of overdraft fees—$35 or so assessed each time a customer uses a debit card when there’s not enough money in the account to cover the tab. This year, banks are expected to take in more than $38 billion (!) in such fees.

Proposed legislation would transform the way the game is played. Right now, the consumers who wind up paying these fees probably have no idea they’re signed up for “overdraft protection” programs, as they’re called. Banks sign them up automatically, and it’s up to the customer to opt out. (When asked in a survey, 80% of people say they would not want such “protection.”) Customers also may have no idea when they’re overdrawing their accounts. They simply find out later that, for instance, a $6 sandwich paid for with a debit card, actually cost $41—because of a $35 fee.

Several banks, feeling the double pressures of customer outrage and the potential of new consumer protection legislation, installed some of their own changes recently. Bank of America, for instance, said it will start limiting the number of overdraft charges to four times per day, which at $35 or so a clip adds up to $140 daily. That’s what they call reform.

But a new law, according to USA Today, would allow the banks to charge a maximum of one overdraft charge per month, and a maximum of six per year. Right now, you could pay more than that in overdraft charges in two days.

Among other proposed changes, banks would also have to get customers’ consent before signing them up in overdraft protection programs, and customers would be notified by text, e-mail, or snail mail when they overdraw. And how many people do you think will actually buy that sandwich, knowing it’s going to cost $41?

A Consumerist post shows the banks’ argument for overdraft fees. The banks say the fees are good for consumers, you see. Or at least, the fees are good for the three-quarters of consumers who never pay them because they never overdraw. As for those who do overdraw, well, they deserve what they get, apparently.