Under rules that will take effect next summer, banks can no longer charge overdraft fees on point-of-sale and ATM debit card transactions without explicit customer permission. Customers can either sign a document opting in to their banks’ overdraft protection policies, or they can opt out and forgo overdraft protection on debit card transactions (in which case their transaction would simply be denied). U.S. banks today collect about $38 billion a year in overdraft fees, although that figure includes fees for checks and some electronic transactions not covered by the new rules.
In the past, disclosure of overdraft fees for debit cards tended to be lumped in with overdraft protection for checks. Research has shown, though, that consumers are more frustrated by fees applied to overdrafts on point-of-sale or ATM transactions than on those that involve checks.
The innovation with the new opt-in rules is that it helps ensure that consumers pay attention. “The assumption is that if you require a consumer to opt-out, that requires them to take action they may or may not have otherwise taken depending on their level of interest or concern,” says Paul Kaboth, assistant vice president in Supervision and Regulation at the Federal Reserve Bank of Cleveland. “With an opt-in, you will clearly delineate those consumers who want that service from those who aren’t paying attention.”
Separately, the Fed has proposed new rules that would place restrictions on gift card expiration dates as well as on inactivity or service fees associated with the cards. The proposed rules, which would take effect in August 2010, require that retailers provide “clear and conspicuous” disclosures of inactivity fees, which could be assessed only after a full year of inactivity and then charged no more than once per month. Expiration dates would extend to at least five years after the card is issued or the funds are loaded.
The Federal Reserve began accepting comments on the proposal in November and will review them before announcing the final rules.
About 95 percent of Americans have received or bought gift cards. In 2008, they spent $88 billion on them. “It would put some order in the marketplace by adding some universal standards,” Kaboth says.