Last month congress finally passed new financial regulations meant to address the problems that led to the 2008 financial crisis. Although much of the bill is dedicated to trying to curb risky behavior of financial institutions, some of the legislation addresses issues that will directly affect how consumers interact with their banks.
One such issue is that banks will now have to explicitly get a consumer's permission to sign them up for overdraft protection, a service that lets consumers be automatically approved to take out more money than they have in their account, but in exchange, pay hefty fees on the transaction.
Over the past decade, banks had begun to sign up consumers for overdraft protection without them knowing. So when a consumer would purchase a cup of coffee, and accidentally overdraw their account by a few dollars, they would be charged an overdraft fee of $30 rather than just having the transaction declined.
Some banks were even going further to milk fees, processing large transactions before earlier smaller transactions, and putting holds on deposits, trigger several pho-overdrafts that would cost the consumer more than $100 dollars in fees.
Angry customers and consumer groups who have pressed for changes to this practice have finally prevailed as the legislation will go into effect on August 15. And according to a Wall Street Journal study, about three-quarters of all consumers will not opt-in to getting overdraft protection.
How banks make up this revenue is unclear, but it won't be easy given that overdraft fees have accounted for about three-quarters of service fee revenue according to The Economist.
Some have speculated that banks will begin getting rid of "free checking" and start charging monthly fees again. Others have lamented that banks may just start charging for other services for which they can bill consumers in an equally opaque way.
At least for now, consumers are rejoicing that unrequested overdraft protection and its associated confusing fees will become a relic of the past.
This is great news. Here's the goverment's FAQ on overdraft fees and the new law:
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