Banks Pushing Customers to "Opt in" to Overdraft
A New York Times report Tuesday highlights banks' efforts to convince customers to continue their overdraft coverage once new Federal Reserve rules go into effect in August that restrict banks from automatically charging fees on overdrawn accounts.
As it stands now, banks make an estimated $20 billion a year on such fees, economist Michael Moebs told the Times. But the new laws will require customers to "opt in" to the program. If they don't, transactions that exceed their bank balance will simply be rejected – putting a dent in banks' profits in the process.
The report cites a letter marketing campaign by Chase as an example of the pitch banks are making to customers.
"Your debit card may not work the same way anymore, even if you just made a deposit. Unless we hear from you," reads a message in alarming red type. "If you don't contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 — even in an emergency." The last phrase – "even in emergency" – is underlined for emphasis.
Clearly the banks have a vested interest in getting as many customers to continue their overdraft coverage as possible, as the new restrictions don't limit how much a bank can charge in fees.
The battle over overdraft fees may well extend beyond the Federal Reserve rules as well. Several members of Congress have pushed for further restrictions, such as one proposal to limit the number of overdraft charges to one a month and six in a year. But those efforts have been bogged down by lobbying efforts, especially from smaller community banks and credit unions.
According to the report, those institutions are looking to convince lawmakers that overdraft services can be important for customers facing short-term financial woes. They also claim that blanket restrictions from lawmakers would unfairly target the smaller firms, who typically charge lower fees than their larger counterparts.