The financial crisis and recession has created an intense populist resentment of the U.S. financial and banking sector by much of the American public. This resentment has led to the passage of new laws and regulations that will limit the ability of the industry to conduct business as it did previously, and cost it billions in revenue.

Changes In Overdraft Regulations
New rules will go into effect on July 1, 2010 that will impact the overdraft charges that banks levy on its customers for certain types of transactions. The changes are being implemented by the Federal Reserve, perhaps to quell the anger from the public over the "bank bailout."

Banks normally will grant overdrafts routinely for most customers and charge a fee for that service. These fees, which are a large pool of revenue for banks, have long been controversial and a source of annoyance to consumers.

The changes will only affect Automated Teller Machine (ATM) and one-time debit card transactions by consumers. It will not change how banks handle overdrafts caused by checks being presented or a recurring monthly payment for a bill. (Find out how to get the bank to pay you for using their services, not the other way around in Cut Your Bank Fees.)

New Rules
One major change is that consumers will now have to opt in, or give consent before a bank will cover an overdraft caused by these types of transactions. That consent can be revoked at any time.

The rule change applies to existing customers as well as existing account holders. Banks also can't discriminate against account holders who opt out and must provide the same terms, account features and charges that opt in account holders receive.

Banks also cannot require customers that want overdraft protection on checks and recurring debit transactions to opt in on overdraft protection for ATM and one time debit transactions.

Billions In Fee Revenue
These fees are an important source of revenue to banks. A study by the Federal Deposit Insurance Corporation (FDIC) released in November 2008 said that 86% of all banks surveyed had at least one overdraft program, and 75% of all banks automatically enrolled account holders without consent.

The median fee charged was $27 per overdraft, and the banks surveyed indicated that these fees were 74% of all deposit account service fees. (Overdraft fees are just one of the expenses that might be keeping you in the red. Find out more in 7 Expenses That Are Keeping You In Debt.)

More changes may be on the way as bills have been introduced in both houses of congress that would impose much stricter limits on over draft fees. HR 3904 and S 1799 would impose the following changes:

  • Limiting the number of overdraft charges to six per year and one per month
  • Institute real time warning to consumers when an overdraft is about to occur
  • Prohibit multiple fees for a single overdraft
  • Prohibit a bank from presenting the largest drafts on an account first which increase the likelihood of an overdraft occurring
  • A rule that the overdraft fee must be reasonable and proportionate
  • Impose a one-year moratorium on raising overdraft fees

What is not clear at this point is whether the new rules instituted by the Federal Reserve will prevent the more draconian measures contemplated by the Congress.

The Bottom Line
The banking industry has become a favorite target of rising populist anger due to the so-called bank bailout and well-publicized multi-million dollar bonuses by top executives of these banks.

Related Articles
  1. Personal Finance

    5 Reasons Inmates Should Be Taught Financial Literacy

    Learn five reasons why financial literacy is a great way to prevent inmates from relapsing into a life of crime after release from prison.
  2. Savings

    How Americans Can Open a Bank Account In Thailand

    Have your paperwork in order and be sure to shop around.
  3. Insurance

    How the Federal Deposit Insurance Corporation (FDIC) Works

    Learn more about the Federal Deposit Insurance Corporation (FDIC) and what happens to your deposits over $250,000 if a member bank fails.
  4. Economics

    Federal Deposit Insurance Corporation (FDIC)

    The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks and thrift institutions.
  5. Wealth Management

    How To Open And Access An Offshore Bank Account

    Opening an offshore bank account does not require a high level of financial sophistication. It’s a lot like opening an account at your neighborhood bank.
  6. Credit & Loans

    Banks Can Notarize Your Documents for Free

    Learn how you can obtain the services of a notary public for free at your local bank branch, along with other places where you can have a document notarized.
  7. Savings

    4 Ways to Ditch Bank Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.
  8. Economics

    What is the Cost of Funds?

    Cost of funds is the interest cost financial institutions pay to use the funds they deploy in their business.
  9. Savings

    Try These Ways to Reduce Your Bank Fees

    The tables have turned on consumers: Not only are bank account interest rates measly, but fees can take a serious bite out your balance. Here's what to do.
  10. Economics

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  1. Are 401ks FDIC insured?

    The Federal Deposit Insurance Corporation (FDIC) works as a protector for customers when banks and financial institutions ... Read Full Answer >>
  2. Does the FDIC cover identity theft?

    When a third party gains access to your bank account and conducts transactions without your consent, the FDIC does not have ... Read Full Answer >>
  3. Does the FDIC cover credit unions?

    The Federal Deposit Insurance Corporation (FDIC) does not cover credit unions. The FDIC only insures deposits in banks and ... Read Full Answer >>
  4. Does the FDIC cover business accounts?

    Bank deposits owned by corporations, partnerships, limited liability companies (LLCs), and unincorporated associations, including ... Read Full Answer >>
  5. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  6. Are variable annuities FDIC insured?

    Variable annuities are not insured by the Federal Deposit Insurance Corporation (FDIC), which regulates only bank products. ... Read Full Answer >>

You May Also Like

Trading Center