The Board wants overdraft changes
The Federal Reserve Board, Office of Thrift Supervision and National Credit Union Association are at it again, and payday loans are looking better than ever when compared with having to deal with overdraft charges on your checking account.
To recap for those of you who aren’t familiar with the service, “overdraft protection” is when a bank or credit union charges a fee to a customer’s account when they have insufficient or unavailable funds in the account to cover a pending transaction. Not only can this service be very expensive, but frequently customers don’t have the clear option to opt-in or opt-out of the service.
Regarding overdraft services, the Board is proposing two alternative approaches - an opt-out and an opt-in - where the bank must give consumers notice of fees associated with paying overdrafts that occur at ATMs or point of sale debit transactions. Thankfully, there is no such difficulty or near deception with payday loans.
Here’s the opt-out the Fed would like to see
This plan would prohibit banks from charging a consumer’s account for overdraft if the customer is given notice and reasonable opportunity to opt out and does so. This doesn’t free a bank from paying overdraft, but it does limit or completely eliminate their ability to charge customers for it.
Per the Board, examples of “reasonable opportunity” may include:
- A 30-day period after receiving notice of the right to opt out for the consumer to call or otherwise contact the financial institution;
- A notice signed as a necessary step in account opening of the choice to opt out;
And their opt-in approach
Here, banks are prohibited from charging overdraft fees unless the consumer is provided with notice explaining the institutions overdraft service for such transactions and is given a reasonable opportunity to affirmatively consent or opt-in to the service. If the consumer opts-in, the financial institution must provide written confirmation of this consent.
Model Forms
As seen in the above links, the Board has produced model forms that financial institutions may provide to consumers in order to attempt to obtain consent regarding overdraft services. These forms reflect a fee for the overdraft service but do not disclose that fee as an annualized percentage rate.
Why is the Board not requiring that APR be listed in bank literature about overdraft services? Perhaps because it would be too embarrassing for banks? Organizations that represent the payday loans industry like the Online Lenders’ Alliance (OLA) attempt to convince the board that if APRs must be published for payday loans per the Truth in Lending Act, banks must follow suit with what amounts to overdraft loans.
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I believe banks should have to show there APRs if online lenders do then they should too it is only fair that everyone tell their customers how much their money is having interest put on it. Consumers should be able to make their own decisions rather than everyone trying to demonize payday loans but the banks are charging way too much for NSF.
Why shouldn’t banks have to disclose all of their terms, even if a customer goes into overdraft. All fees should be upfront, but that would probably be too much for the larger bank firms, it’s not like they have a responsibility to fairly deal with the customer or anything, do they?