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.

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