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Editorial: Fed changes overdraft fees; college students rejoice

Nov. 17, 2009

Claire Taylor | Lariat Staff

The Federal Reserve announced on Thursday that banks will now be required to receive informed consent from customers in order to charge overdraft fees on ATM and debit cards.

As it stands, banks are allowed to charge a nominal fee each time a customer uses his or her checking card and there are not sufficient funds in their account to cover the purchase, whether the amount in question is 10 cents or $10 over the limit.

Beginning on July 1, 2010 for new accounts and Aug. 15 for existing customers, the Fed will put a ban on overdraft fees if they have not been previously agreed upon by the cardholder.

This decision coming in the wake of the worst recession since The Great Depression shows that the Fed values more than simple business decision of penalizing customers for overdrawing their account - it is instead putting the quality of life of the American people at the forefront of its decision-making.

Overdraft fees raked in close to $24 billion in 2008 thanks to more than 50 million Americans overdrawing their checking account at least once.

Half that number overdrew their account a whopping five times or more, and there is currently no warning that banks must give customers when they have incurred an overdraft.

There is also a disturbing lack of cap on the number of overdraft fees one person may receive in a 24-hour period.

The changes that these new regulations would bring about, such as reduced pressure to monitor accounts so closely, are welcome additions in a time when using cash for purchases is becoming increasingly uncommon, especially for college students.

Using a debit card is often more convenient than using paper money - there are no bills or coins to deal with and most jobs (and parents) deposit money directly into a student's banking account.

Reducing banking penalties such as overdraft fees gives customers more reason to trust their money to an individual banking branch instead of hiding it under a mattress.

All of the trouble is not going to go away, however. Recurring payments that have been set up to auto-draft - which siphon money out of accounts on a monthly basis for rent, bills, etc. - are still able to put overdraft penalties on accounts. If customers want to avoid such pains, they will have to manually stop the recurring payments.

Baylor students may want to consider this when signing up for rent and billing options.

Overdraft fees have become a real frustration for many college students and society as a whole. They can pop up at any time, anywhere, because of any small amount. We are glad that the Fed is finally doing something about it.

Fortunately, informed consent, which has fallen upon deaf ears for many years, has finally permeated the system to the point where reformation is being enacted.

No individual should be penalized for being unaware of the exact amount of money in his or her checking account at any given time, and the impending changes to overdraft fee policies are a step in the right direction.

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