New Fed Rules Will Restrict Overdraft Fees on Debit Cards

New rules announced by the Federal Reserve on Thursday will restrict banks from charging overdraft fees without customers' consent on some debit card purchases, the New York Times reports. Banks will be required to explicitly outline their overdraft policies in clear language and obtain the customer's written consent before charging fees to his or her account. Part of an effort to restrict predatory credit practices, the new regulations will take effect next summer and will affect both new and existing debit cards.

The new rules will not apply to checks or recurring debit card purchases, such as payments for utility bills set up in advance. Consumer-protection groups heralded the regulation as a positive step toward curbing what many consumers consider exorbitant and predatory fees. The Fed says that banking institutions make $25 million to $38 million annually from overdraft fees.

Industry officials said the prohibition on overdraft fees could lead some banks to stop offering overdraft protection. "If that happens, it will not be the banks that suffer as much as it will be the consumers and small businesses that have taken bounce protection for granted," said Camden R. Fine, president of the Independent Community Bankers of America. "In many ways this rule and proposals in Congress turn back the clock 25 years and deny a service that was demanded by the consumers in the first place."