In February, the Federal Reserve Board issued a rule eliminating fees for consumers who overdraw their debit card accounts while withdrawing money from an ATM or making a purchase.
Under the Credit Card Accountability, Responsibility and Disclosure Act, consumers will have the option of incurring overdraft fees on their credit cards in exchange for allowing transactions to go through. Those who do not opt-in will be denied at the point of purchase. Another part of the Credit CARD Act mandates that overdraft fees are proportionate to the dollar amount of the violations.
Both laws will be effective this summer. These protections are likely to shrink revenue from overdrafts by $1.95 billion this year, according to Moebs $ervices. This is a 5 percent decrease from the $37.1 billion collected through such fees in 2009.
Some financial institutions, like Bank of America, have announced overdraft protection plans allowing similar protections to those mandated by the Fed. Starting this summer, the company’s debit cardholders will be denied transactions that would overdraw their accounts. An opt-in overdraft program would also be available.
Many economists believe that these policies will cause commercial banks to introduce new fees in order to make up for lost revenue. Moebs $ervices noted that larger institutions are likely to suffer more under new legislation than community banks and credit unions, which attracted customers following Bank of America’s announcement.
“One bank’s inability to adjust to the changing overdraft landscape is another bank’s bottom line increase, and this dynamic is all to the consumer’s benefit,” Michael Moebs, economist and CEO of Moebs $ervices, said.
Overdraft fees have also increased gradually during the previous decade, according to the report, with this year’s median price landing around $27.
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