(Source: The Baltimore Sun, Maryland)
By Eileen Ambrose, The Baltimore Sun
June 28--Some banks soon will find it more difficult to slap consumers with overdraft fees -- a boon to customers who discover that one misstep can lead to a cascade of penalties.
Guidelines that take effect next month will prohibit thousands of small banks from processing transactions in order of the highest dollar amount to lowest -- a practice that empties customer accounts faster and triggers more overdrafts.
Similar guidelines could be in store for the big players, too. And one major bank, Citibank, announced recently that it would no longer process paper checks from high to low -- a move that could encourage competitors to follow suit.
Banks for years have been accused -- sometimes in consumer lawsuits -- of manipulating transactions in a way that has generated billions of dollars in overdraft fees annually.
"Overdraft fees became the crack of banks. They got hooked on it," said Ed Mierzwinski, a program director for U.S. Public Interest Research Group in Washington.
It's been only in more recent times that regulators have tried to cure them of that addiction.
Regulators last summer, for example, began requiring banks to get your permission before enrolling you in overdraft protection programs for debit card transactions. So unless you sign up, you won't get hit with a $35 fee if you overdraw your account by buying, say, a $3 cup of coffee with a debit card. Instead, your transaction will be denied and you might have to pay with cash.
Now regulators are adopting additional guidelines on overdrafts.
The new guidance from the Federal Deposit Insurance Corp. will kick in Friday for the 4,640 small banks it regulates. (The guidelines apply to automated overdraft programs, not cases in which bank employees decide to cover a transaction because they know the customer.)
The FDIC wants banks to monitor the accounts of chronic check bouncers. Once someone pays more than six overdraft fees in a year, banks will have to reach out that customer with information on lower-cost alternatives to pricey overdraft programs.
For example, a customer can link a savings account to checking so the bank can transfer money from one to the other when the balance is low. Or, a consumer can apply for a line of credit to cover overdrafts. Both options cost money -- but not as much as an overdraft fee.
The Office of the Comptroller of the Currency started accepting public comment this month on its guidance for overdraft programs at large national banks.