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Automatic overdraft fees became extinct as of Sunday, according to the Federal Reserve Board’s Electronic Fund Transfer Act. August 15th was the deadline from the Federal Reserve for banks to no longer issue overdraft fees for checking accounts created before July 1, 2010. July 1 was the date it set to disallow banks from charging fees on new accounts.
Going forward, financial institutions cannot assess any fees or charges on a consumer’s account when they make transactions at an ATM or with a one-time debit card. However, banks can still allow their customers to “opt-in” to receive the fees if customers so choose. The act requires banks to provide a notice explaining their overdraft services, the fees involved, and the different options the consumer has.
Customers that do not opt in to overdraft coverage will simply have their debit cards declined at the point of transaction.
“The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
The current average rate for an overdraft is $26, and banks incur a large amount of funds from the fees. Last week, a federal judge ordered Wells Fargo to pay back $203 million, after finding the institution guilty of arranging customer withdrawals in a way that maximized the change they would be charged overdraft fees.
Moebs Services, an Illinois-based economic research firm, issued a statement with the opinion that ending overdraft fees could have the unintended consequences of reducing consumer access to short-term cash, increasing the cost of small loans for consumers, and put banks at further risk of closure due to decreased revenue and capital.
