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Fed Urged to Beef Up Overdraft Rules

Loopholes could mean business as usual for banks

December 23, 2008

CRL says the proposed rule may, at best, require consumers' affirmative consent before being charged overdraft fees on ATM and certain debit transactions, which would be a step in the right direction. But the group says the Fed also suggested that it may instead effectively maintain the status quo--and continue to allow unauthorized overdraft fees on all types of transactions.

"Banks should not be able to make expensive overdraft loans without their customers' explicit permission," said Eric Halperin, director of CRL's Washington, D.C. office.

The FDIC confirmed in a recent report that unauthorized overdrafts are stripping funds from the bank accounts of low-income customers unfairly and at great cost to those who can least afford it. CRL calls the overdrafts "abusive short-term loans" that strip nearly $17.5 billion from consumers annually.

The group wants the final rule to be strengthened to require banks to obtain explicit permission from their customers before enrolling them in these programs, particularly for ATM and debit transactions that can be cancelled at the terminal at no cost to the consumer.

CRL also suggests institutions be prohibited from other abusive practices, such as clearing transactions from largest dollar amounts to smallest to increase the number of overdraft fees the bank can charge.

Many consumer advocates are praising government regulators for recently announcing reform of credit card rules, but are criticizing the delay in implementing them. The new rules are not scheduled to go into effect until mid-2010.

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