Overdraft Protection Will Be Optional By Next Summer

The changes in banking practices are hitting American consumers hard. The lack luster economy and the rising unemployment rise is already a heavy enough baggage for most American consumers. Add to that the oppressive credit card terms that credit card companies are making and it becomes clear why American consumers are outraged at the lack of protection from government regulation agencies which are supposed to look after their interests.

It seems that the Fed may finally be looking into what consumers are complaining about. One fix that the Fed has introduced ought to bring some much needed respite for consumers, though it will not be coming until the next summer: no more overdraft fees.

Customer complaints about overdraft fees has been one of the loudest in the past few months. Ironically, overdraft protection, the service where overdraft fees come from, are supposed to be a sort of protection that credit card companies give to their customers against going over their credit limits. Credit card companies say that, when credit card holders go to the checkout counter and pay for their purchases with their credit cards, they do not want to be embarrassed or inconvenienced with having their transaction denied because they are over their limits. To avoid these, credit card companies provide overdraft protection which allows credit card holders to go over their credit limits but, for a price.

It seems like a overdraft protection is actually a good service until consumers factor in how much it costs and the fact that credit card companies will not warn card holders that they have gone over their limit and will allow them to “overdraft” multiple times in one day. Overdraft fees are not trivial and have actually gone up in the past few months. It gets even more expensive when a card holder, unaware that he or she is already over his or her credit limit, gets charged with multiple overdraft fees.

The new Fed rules is going to stop this practice once and for all. As Ben S. Bernanke, Federal Reserve Board Chairman says, “The final overdraft rules represent an important step forward in consumer protection”.

The new rules will now require card holders to opt in to the overdraft protection system of their card issuer instead of having them enrolled automatically. Compliance to the rules will not be fully implemented until July 1 of next year, though, technically, card holders can still get charged with overdraft fees up to August 15.

Though the overdraft rules brings some much needed change in the credit card industry, some say it is still not enough. Center for Responsible Lending director for the Washington office Eric Halperin is one of them. He says, “We appreciate that the Fed chose to implement the strongest overdraft reform rule it was considering. But this improvement is undermined by the Fed’s failure to propose or enact necessary safeguards against a host of unfair practices”.