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Critics Say Fed’s Overdraft Rules Are ‘Not Enough’

November 23, 2009 by  

Critics say Fed's overdraft rules are 'not enough'Recently, the Federal Reserve said that beginning next July financial institutions will be prohibited from charging overdraft fees without their clients’ consent.

The new regulations mean that banks will only be allowed to levy fees for overdrafts on ATM and debit card transactions if account holders sign up for the plan.

According to Fed Chairman Ben Bernanke the regulations will protect consumers so that "both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

While the move was welcomed by Consumers Union, its representative stated that the new rules do not go far enough and said proposals currently considered in Congress would provide stronger protections.

Legislation introduced by House Financial Services Committee chairman Barney Frank of Massachusetts and Senate Banking Committee chairman Christopher Dodd of Connecticut, both Democrats, also includes a ban on automatic overdraft protection of checks and recurring charges which the Fed failed to ban.

Dodd has furthermore introduced legislation to strip the Fed of authority for regulating banks and give Congress a greater voice in naming the central bank officials who set interest rates, according to Bloomberg.

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  • Attorney Peter N. Wasylyk

    Why is the Federal Reserve Deregulating Banks by Removing the Consumer Protections in the Truth in Lending Act from Application to Bank Overdraft Plans at the Same Time that Congress is Proposing Strengthening Consumer Protections in Bank Overdraft Plans?

    On Thursday November 12, 2009 the Board of Governors of the Federal Reserve adopted a new regulation and issued a new Official Staff Commentary relating to bank overdraft fees. The regulation is about 93 pages in length and has the appearance of a consumer friendly regulation that has a provision that as of July 1, 2010 consumers must affirmatively opt-in to overdraft protection plans. However, I believe that even this attempted consumer friendly provision does not go far enough in that it does not apply until July 1, 2010.

    Given the recent history of the banks in raising credit card interest rates before the effective date of the new federal law providing enhanced consumer protections for credit card consumers, one can only be suspect that banks will use this time before the July 1, 2010 effective date to continue to harm the interests of consumers. The regulation does not provide substantive protections to consumers, but rather to the contrary contains a provision buried in the fine print that deregulates bank overdraft protection plans by removing the Truth in Lending Act (TILA) from application to overdraft plans.

    This untimely deregulation of banks with respect to overdraft plans is arguably the most damaging provision of the regulation and eviscerates any vestiges of consumer protections for those who have already been affected and for those who will be affected in the future by bank overdraft plans. Not only are there no safeguards for consumers, the interpretation by the Federal Reserve that makes TILA inapplicable enables banks to continue to perpetuate unfair practices with impunity.

    Attorney Peter N. Wasylyk, 1307 Chalkstone Avenue, Providence, RI 02908
    Tel: 401-831-7730
    Fax: 401-861-6064
    E-Mail: pnwlaw@aol.com

  • Fed Up Gal in NM

    Attorney Pete,

    It’s possible you may be redeeming the entire legal profession with your post. I say possible (not definite), because while I agree with you about the unscrupoulous acts of many banks (includes just about all banks, mortgage companies, and credit card companies, etc)…..I also am sick and tired of people consistently running their credit cards up to the max….then filing bankruptcy or just simply stop paying…and complain they can’t afford it. A little fiscal discretion may have been all that was needed to prevent them from screwing up their credit and screwing with everyone else’s interest rate (on the upscale side to offset the companies losses).

    I’m also a bit skeptical as to why you would include your complete address, phone, fax and email info in your first post on this article. Just my thought.

    Fed Up Gal

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