Debit Card Overdraft Rules Announced by Federal Reserve

federal-reserve-boardThe United States Federal Reserve Board today announced a set of rules designed to prevent financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

The rules are designed to stop the practice where banks charge high overdraft fees for transactions which could have been prevented by issuing a “decline” message during the course of a point of sale or ATM transaction when a debit card is used.

Under the new rules, consumers must be given the chance to “opt in” to an overdraft program.  Before opting in, the consumer must be given a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.

Here’s how Federal Reserve Chairman Ben Bernake describes the rules:

The final overdraft rules represent an important step forward in consumer protection.  Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.

The new Fed rules go into effect on July 1, 2010.

The Federal Reserve also published sample “opt in” language that may be used by financial institutions. The sample language is shown below.

Debit Card Overdraft Disclosure – Sample From Federal Reserve

Check out the full text of the debit card overdraft rules here.

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