Federal Reserve limits overdraft plans

New rules would require customers to sign-up for protection.

By Ryan Teague Beckwith

Starting next year, your bank will not be allowed to charge you many overdraft fees without your permission.

Under new regulations announced by the Federal Reserve Thursday, customers will need to sign up for overdraft service on ATM withdrawals and one-time debit card purchases.

The rules will take effect on July 1.

They are similar to legislation being considered in the House (HR 1456 ) and the Senate, which sought to limit a practice which consumer advocates say has gone too far. Unlike those bills, the new Fed rules do not cover checks and automatic bills.

Since 1999, the average overdraft fee from a major bank has gone from $10 to $35, according to a report from Moebs Services. That's led to an increase in profits from $18 billion a decade ago to a projected $38.5 billion this year.

The fees can also compound because banks often process larger purchases first, draining the account and leading to overdraft fees on a bunch of smaller charges.

Customers who don't sign up for the plans will have their debit cards declined when they do not have enough money in their account.

-- Ryan Teague Beckwith, Congress.org

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