Bank regulations protect against overdraft

Jessica Janasz didn’t think twice before swiping her Commerce Bank debit card to pay for a $10 haircut.

The next day and one debit card purchase later, she checked her online account and realized she had been charged $55 in overdraft fees.

“I thought it was absolutely ridiculous that I was charged so much,” said Janasz, a junior from Overland Park.

Janasz isn’t alone in her frustrations with overdraft fees. According to a 2008 report by the Federal Deposit Insurance Corp., nearly half of people ages 18-25 incur fees each year for attempting to withdraw more money from an account than is available.

Big Bucks

Banks in the United States stood to collect $38.5 billion in overdraft fees in 2009, according to data from Moebs $ervices, an economic research firm.

However, new Federal Reserve regulations set to take effect this summer will soon cause banks to face stricter rules for charging overdraft fees.

The Federal Reserve regulations will require banks to explain overdraft policies and get written consent from customers who enroll in overdraft protection programs. The alternative would be for customers to have bankcard withdrawals denied when the checking account has no money.

Even with the changes, consumer advocates are demanding more protection. Director of financial services for the Consumer Federation of America Jean Ann Fox said the new Federal Reserve regulations don’t go far enough.

Fox said the regulations don’t protect consumers from disproportionate charges, additional fees assessed when charges aren’t paid and charges from using paper checks.

“Competition hasn’t disciplined banks and the Federal Reserve hasn’t taken the necessary steps, so Congress needs to take action,” Fox said.

The Consumer Federation of America is supporting the passage of House Bill 3904 and Senate Bill 1799, which would “amend the Truth in Lending Act to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes,” the legislation states. Both bills have been held up in committees since the fall.

U.S. Rep. Dennis Moore is a chairman on the Financial Services committee that is currently considering House Bill 3904. He said the Federal Reserve regulations were a step in the right direction, but more should be done to protect consumers.

“Congress needs to ensure a $2 cup of coffee doesn’t end up costing the consumer $40 in fees,” Moore said through e-mail.

Robert DeYong, director of KU Center for Banking Excellence, said students don’t need to wait for the law to offer protection from overdraft charges.

“The best way to avoid fees is to keep track of what you spend,” DeYoung said. “You shouldn’t write checks or use debit cards without writing it down in a bank book.”

Daniel Rezaiekhaligh, a senior from Kansas City, Mo., said he learned to be more diligent about checking his account records after he was charged $80 in fees from Bank of America for a $1.80 purchase.

“Once you have it happen, you’ll see it’s such a scam,” Rezaiekhaligh said.

Rezaiekhaligh said it helps to keep track of finances, but banks also need to be more responsible for telling their customers about overdraft charges.

“Banks will notify you about anything else, but not about overdrafts,” Rezaiekhaligh said. “You never hear, ‘Hey, not only are you out of money, but we’re charging you $25 more dollars.’”

In a statement about its overdraft policies, Commerce Bank said, “Commerce Bank has invested in providing more information and services to help customers effectively manage their finances to avoid overdrafts.”

A Bank of America representative did not respond to an interview request.

In the meantime, Fox, from the Consumer Federation of America, has one suggestion: “Leave your debit card at home.”

For more information, go to: Bank regulations protect against overdraft:

Check out Braden Katz's article for more information about debit cards and overdraft charges.

With the new regulations set to begin this summer and more legislation pending Congress, banks will soon have to readjust their policies.

Let us know what you think or add to our blog by writing a comment.

Blog post written by the Dowell Taggart Team of RE/MAX Best Associates

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