FDIC head appeals banks for tighter restrictions on overdraft fees

image In the past week, some of the nation’s largest banks unveiled their plans to change the way they assess overdraft fees, in response to Federal Deposit Insurance Corp’s chief’s appeal for tight restrictions on fees charged for overdrawn checking accounts.

Banks believe changes to their overdraft policies will stave off further regulation. Chase has said that by early next year, it will stop approving debit-card overdrafts, and charging a fee, unless consumers have consented to the service. Meantime Wells Fargo wants to limit the number of times consumers can get hit with overdraft fees each day, to four from 10.

As, head of FDIC Sheila Bair said in an interview with USA TODAY on Friday, moves are "significant improvements, but do they go far enough?" This question, she considers, still remains open. “We do need some regulatory standards in this area. We need the Fed to finalize rulemaking in this area."

Bair said that any major limitation to bank policies «needs to be done very carefully, given the state of the industry."

She upholds regulation to require banks to get consumers’ permission to approve transactions that overdraw their accounts and charge a fee. She also hopes overdraft coverage should be treated as a loan, which would require banks to calculate and disclose the average APR to consumers. In the past, banking regulators have said that overdraft coverage is a credit product, but have stopped short of regulating it as a loan.

The Federal Reserve intends to release a rule by the end of the year on overdrafts. However, it’s still unclear whether, and to what extent, it will require banks to curtail overdraft practices.

Rochdale Securities analyst, warns that "putting any type of limitation on overdraft fees will just result in some consumers being kicked out" of the system if banks find that they can no longer make money off them. At the same time, other analysts consider that heavy restrictions could also make it harder for the troubled industry to recover.


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