New Bank Overdraft Rules Take Effect This Weekend

NEW YORK (CBS 2) — Up until now, overdraft fees have been a huge source of income for banks. But new laws in effect soon will change all that.

Still, many consumers may need to contact their banks.

CBS 2 consumer reporter Kirstin Cole has more on the end of automatic overdraft fees.

Every year banks make an astonishing $24 billion from customers who overdraw their checking accounts.

“Even if it’s for a $1 you still have to pay the $35,” said Monica Aviles of the Bronx.

“It’s something that I complain to the bank and I’ve thought about switching to a credit union because they’re a lot better about fees,” added Melissa Farrar of the Upper West Side.

All that will change on Sunday. New federal laws abolish automatic enrollment in overdraft protection for ATM withdrawals and debit card charges, meaning transactions with insufficient funds will be declined.

To avoid the problem, customers need to specifically request overdraft protection. But they’ll have to pay bank fees.

It’s a move consumer groups say will protect the most vulnerable — 16 percent of all account holders end up paying 74 percent of all overdraft fees. And 5 percent of all accounts are overdrawn 20 times or more a year, spending $1,600 in fees.

“The lowest income people who signed up for checking accounts were being given accounts that automatically had these overdraft accounts and wouldn’t know until they went into overdraft that fees were associated with the overdraft,” said Phyllis Salowe-Kaye.

Banks have been scrambling to educate customers before overdraft is turned off, with many offering extra warnings at ATM locations, through mailings and at bank branches.

Bank of America, the nation’s largest debit card issuer, is joining a handful of other banks and completely banning all debit card and ATM overdraft fees, but what it means is they’ll be losing out in billions of dollars in fee revenues.

That has many fearful of what banks will hit them with next.

“They’ll have to find other ways to make money then, which they will,” said Dave Przywara of Hell’s Kitchen.

“They need to be aware, very specifically, of what fees and charges are associated with these overdraft accounts,” Salowe-Kaye said.

Which means spending time reading the fine print.

Not covered by the new rules are paper checks and automatic payments. Most of those will still be covered for a fee.

  • Alof

    In my view, it was an excessive banking tax on the most ‘stressed’ or mathematically-challenged cardholders, and my sister was one. I am glad it will make less money for the banks in the future. Let them charge more for each of the accounts instead.

  • Mark

    @Odumbo & @toomuch what’s stupid is your comments. Obviously you have never been on the receiving end of overdraft fees. It’s criminal that banks have been allowed to charge people these ridicules overdraft fees for money you don’t have. It should be common sense that if you don’t have enough money in the bank to pay for a transaction then the bank should deny the transaction. Not approve the transaction then charge ungodly fees associated with it. It’s all a scam banks have been using foryears to steal money from consumers and I am glad our government has finally put an end to it. @Odumbo & @toomuch maybe everyone isn’t as financially stable as you two, but one day I hope something financially bad happens to you and get a wake up call on how to be better more respectful humans.

  • EzLivin'

    Why don’t they do something about the 30% interest rates on credit cards???

  • uscitizen

    What the heck. We should all just quit our jobs and pull all of our money out of the bank and then what no worries. Wake up Washington. This is going way to far!!

  • dara

    Last month my bank Members Heritage credit union has charged me $75 penalty for overdrafy loan can I get my money back now, I have been unemployed for a year now.

    • Jonathan

      Call Obama.

  • toomuch

    These are just stupid, stupid people. They should be muzzled. Please exclude me from these stupid laws.

  • Odumbo

    Ridiculous. Please, please protect me from myself! I’m too stupid to know when I don’t have enough money in my account! Thanks, members of congress!

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