Federal Reserve Finalizes New Overdraft Rules

The Federal Reserve today issued its final rules concerning bank overdraft fees. About a month ago, I wrote about how several prominent banks had already begun allowing customers to opt out of the ability to incur overdraft fees. While clearly good news for chronic overdrafters, I worried about greater cost this policy change could impose on those who never attempted to withdraw more money than they had. The Fed's rules appear mostly in line with that new trend that some of those banks have already begun moving towards.

The Fed's new rules will:

prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

Additionally, it requires that customers all have the same terms and conditions for their accounts, whether they opt in to overdraft services or not. The rules go into effect on July 1, 2010.

Still, Congress wants even stricter rules. The Senate Banking Committee will be holding a hearing next week to discuss legislation that would go further than today's Fed announcement. Some additional rules would include requiring banks to limit monthly and yearly overdraft fees per customer, requiring fees to more closely align to the actual cost incurred and requiring customer warnings if an overdraft were to occur during a transaction.

I'll be curious to see how checking fees change across the board now that banks can no longer rely on overdraft fees as a significant source of income. We've already seen how last spring's credit card regulation resulted in a greater cost for all cardholders -- now more expensive checking accounts may follow as well.