The Federal Reserve’s move to make it harder for banks to to charge ATM, debit card overdraft fees has been widely applauded by consumer groups. Even the American Bankers Association didn’t really balk.
But the Fed decision’s got me wondering how it will really play out.
Starting in July, financial institutions won’t be able to automatically enroll people in ATM or debt-card overdrafts services. Consumers will have to opt in to the service, one where banks often charge $10, $20 or more for ATM or debit-card overdrafts (check overdrafts aren’t part of the new rule).
So instead of being automatically enrolled, you get information and if you don’t opt in to the service you can’t be charged overdraft fees on ATM and one-time debit card transactions.
Sounds good. The downside, of course, is that the bank will simply deny the transaction, potentially leaving you without cash when you need it.
Marshall MacKay, chief executive of the Independent Community Bankers of Minnesota, also notes that processing costs tied to the overdrafts will still need to be covered.
So in effect the new ruling implies that any expense incurred by processing those exception items should be paid not by the person who incurs the expense (overdraft), but by all the customers including the vast majority who do not use the service.
There is not a business around that does not ultimately pass it’s expenses on to its customers. so it seems very unfair to the majority of bank customers to pay for the poor record keeping of a few.
Overdrafts are a multi-billion dollar money maker for banks. The FDIC in a report last year found automated overdraft usage fees assessed by banks ranged from $10 to $38.
Consumers Union and other groups say there are cheaper options for bank customers, including linked accounts, where money can be moved from savings to checking to cover an overdraft.
But, practically, what will consumers do? Will they seek out the cheaper alternatives? Will they keep the costly overdraft protection on ATM and debit-card transactions? Or will they just roll the dice?
Contact me directly and let me know what you’d do. What’s your experience with overdraft services? What better options are there (besides not overdrawing your account)? What does your bank charge?