Good Riddance to (most) Debit Card Overdraft Fees

In college I wound up paying more than $30 for a bean burrito. It wasn’t some special burrito made with gourmet pinto beans and French brie either. Due to some miscalculation on my part I had overdrawn my checking account and used my debit card to purchase that burrito. Instead of suffering the humiliation of having my card declined at my favorite quick Mexican food joint, my bank decided to slap me with a $29 overdraft fee and let me buy that burrito anyway. But come next summer I’ll never have burrito regret again.

The Federal Reserve announced new rules today that will end such charges. The new rules (which take effect July 1 for new cards and August 15 for existing accounts) will prohibit banks from charging overdraft fees on debit cards without consumers’ permission. The rules cover charges made at retail stores and ATMs. But they do not include overdraft fees on checks or reoccurring bill pay type charges.  Instead, the rules are aimed at reducing fees for small “everyday” charges (i.e. bean burritos or cups of coffee).

All of this was made possible by this horrible recession we are in. You see, the Fed has been sharply criticized for not stepping  in more quickly to  help protect consumers from predatory loans and misleading mortgage lending. The Fed already issued rules to help curb those problems in the future. Now they are taking aim at overdraft fees, which banks rake in. Each year financial institutions make between $25 billion and $38 billion for overdraft fees. Although these new rules don’t eliminate overdraft fees altogether (and banks might even increase the fees they are able to charge in response) at least you’ll never overpay for a bean burrito or bookstore latte again.

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Image by Neil Turner, used under a Creative Commons licence.