Word: overdraft
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Nearly two months ago, this column chronicled a financial misadventure whereby I got stuck paying $70 in overdraft fees to Bank of America because I had overdrafted my account by $6. In case you can’t remember that far back, the mood was outrage. I had been automatically enrolled in a so-called service—of which there is no opting out—that charges $35 for transactions you make when you have no money left in your checking account...
Some senators were agitated, too. There was heavy talk of legislative action starting in September when it was reported that banks expected to draw $38.5 billion this year in “overdraft protection services,” 90 percent of which was coming from 10 percent of checking accounts. It’s the people who can least afford it who subsidize the rest...
...banks were less enthusiastic about changing the rules. In a year when the economy was slumping and consumer spending was way down, overdraft fees had become more profitable than traditional banking for half of America’s banks. After losing more than $300 million in the third quarter last year, Visa made a big push for its Visa check cards—basically just glorified debit cards—and recently announced netting more than $500 million this quarter...
Following months of criticism from consumer advocacy groups, the Federal Reserve, which is the body in charge of regulating this sort of activity, finally got its act together and issued a new set of rules last Thursday restricting overdraft services to come into effect July 1. In case you missed the announcement, the new rules require banks to obtain the express approval of cardholders before signing them up for overdraft protection and to explain the policies in easy-to-understand language...
...regulation ends there. Recurring payments, like utility bills, or anything you pay for with a check will still be subject to overdraft fees. Think about all the other beneficial changes that could have been made. Overdraft protection is extremely helpful for some people (myself not included), but the new rules leave you to choose between getting ripped off and not having any protection at all. Suppose, as one bill floating around Washington proposes, that, rather than a $35 flat fee, overdraft charges were proportional to the size of the overdraft—or that you were permitted a limited number...