Banks to begin providing tally of overdraft fees
Posted on Tuesday, July 4, 2006
Banks now are required to inform customers in their monthly statements how much they accumulate in overdraft protection fees, in keeping with a Federal Reserve regulation that went into effect Saturday.
Banks that promote overdraft protection are required to notify customers the amount of overdraft fees they incur each month and for the year. For 2006, banks only are required to inform customers the year-to-date fees incurred since July 1, when the regulation started.
If a bank does not promote overdraft protection, it isn’t required to include the overdraft fees accrued during the month or year.
Here’s how the overdraft protection programs typically work:
If a customer writes a check — or uses an automated teller machine or debit card — and overdraws his account, the bank covers the overdraft and charges the customer a fee that ranges from about $ 15 to $ 30. The amount of the overdraft is taken out of the customer’s next deposit, if it is made within 30 days.
The Federal Reserve implemented the regulation in response to concerns about the adequacy of information given to customers when they overdraw their accounts, the Fed said in May.
The change addresses complaints by such groups as the Center for Responsible Lending in Durham, N. C., which calls overdraft protection a policy “that traps vulnerable customers in debt.”
“Some banks now realize that trapping borrowers and charging them a $ 25 fee for a $ 20 overdraft loan is a pretty good scam,” Eric Halperin, a senior policy counsel at the center, said in a prepared statement.
But many consumers prefer having overdraft protection instead of being faced with the embarrassment of returning to the merchant to make amends when a check bounces, promoters of the policy say.
The regulators approved the regulation to be sure banks are advertising overdraft protection correctly, Mike Schaller, a senior analyst with SNL Financial in Charlottesville, Va., said Monday.
“They want to be sure that depositors are aware of the dis- cretionary nature that banks have in using their overdraft protection,” Schaller said. “They want to be sure customers are well-educated and are aware of what the fees are.”
Arvest Bank charges $ 15. 93 or $ 17. 43 for a bounced check, depending on the account the customer has, said Deb Haddadi, a senior vice president for Arvest in central Arkansas.
Arvest will disclose overdraft fees incurred by customers on its next statements.
“We always like to be upfront with the customer and let them know what we offer,” Haddadi said. “It is the customer’s choice whether they overdraw an account. They have that control.”
Bank of the Ozarks, which charges $ 30 for overdrawing an account, does not aggressively promote its overdraft protection, but also will include the amount of fees customers accumulate in their statements, said Susan Blair, a Bank of the Ozarks spokesman.
“I don’t think it will make a significant difference in [customers’ ] banking,” Blair said.
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