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Opt-in featured in Fed overdraft rules
WASHINGTON (11/13/09)--The Federal Reserve Board's final rule on overdraft protection plans, which would require the consent of consumers before they could be charged overdraft fees for ATM and one-time debit transactions, was released on Thursday. According to the Fed, the overdraft rule also prohibits credit unions and other financial institutions from “discriminating against consumers who do not opt in” to overdraft plans by requiring them to provide those consumers with identical account terms, conditions, and pricing to those given to customers that have opted in to overdraft plans. The final rules, which are issued under Regulation E, would require credit unions and other financial institutions to fully disclose the details and fee structure of the overdraft service. Financial institutions also may not require that a consumer opt-in to ATM and one-time debit card overdrafts in exchange for having overdrafts paid on checks under the terms of the new rule. Members and customers that have elected to accept the overdraft service will also have the right to cancel that service in the future under the Fed rule. Fed Governor Elizabeth Duke in a release said the Fed rule would “help consumers better understand the terms and conditions of overdraft services” and help them to “avoid fees when these services do not meet their needs." The rule does not cover check transactions, and will apply to all consumers, including existing account holders. The Credit Union National Association had supported an opt-in feature if it was limited to debit and ATM transactions. However, CUNA said it would only back this feature if it was limited to new members, due to the potential operational difficulties of applying such a requirement retroactively to existing member relationships. The rule will come into effect on July 1, 2010. Both the House and Senate have been working to address overdraft fees through separate pieces of legislation. Senate Banking Committee Chair Sen. Chris Dodd (D-Conn.) recently introduced legislation that would force financial institutions to provide customers with the ability to choose whether or not they wish to participate in an overdraft program. Rep. Carolyn Maloney, (D-N.Y.) has also recently offered similar legislation. Commenting on the Fed rule, Dodd said that legislators "need to do far more to protect customers from abusive bank products." While Maloney said that the Fed rule was a "good, solid step forward," she said in a statement that there is still a "need for Congressional action on this issue." Credit Union National Association President/CEO Dan Mica, however, indicated that further legislative action on overdraft fees may not be prudent. (See related coverage: Regulation, not legislation, is right overdraft approach: CUNA.)
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