New rules bar bank overdraft fees without consumers' OK

Under new federal rules this week, banks can no longer charge fees for covering overdrafts unless the consumer chooses to take an overdraft protection plan.

Previously, banks could automatically enroll a customer in overdraft plans - charging $20 to $30 per overdrawn transaction. Now, customers must agree to the coverage for debit and ATM transactions. Those without coverage would see an overdraft transaction denied.

The Federal Reserve rules went into effect for existing accounts Sunday; it went into effect for new accounts July 1.

Tom Kelly, a spokesman for JPMorgan Chase & Co., said Monday it was too soon to tell whether customers who did not agree to overdraft coverage have already had transactions denied. Kelly said customers who do have payments denied at the cash register can immediately choose to take an overdraft plan. "They can call us on the spot and have overdraft coverage turned on," he said.

The American Bankers Association had opposed the rule change, arguing that overdraft protection plans helped customers avoid "inconvenience, embarrassment and potential costs" of having payments rejected. But major consumer advocacy groups, which criticize overdraft plans, support the new opt-in requirement.

Jackie Beh, 59, of West Sayville, said she was glad she could turn down the service when one of her credit card companies called. "People have the right to know," she said.

Kathleen Malloy, 57, of Islip Terrace, who decided to take the coverage, was also pleased she had a choice. Years ago, she said, she made a mistake in her calculations and ended up having checks bounce and paying overdraft fees. "I don't believe that it costs $30 to lend money for what sometimes is as little as an hour," she said.

Robert Biancardi, 58, of Valley Stream, said he approved of the new policy. He said his daughter, while in college, racked up fees when she used her debit card despite not having enough in her account. "They would allow her to charge for getting a sandwich, then charge a $25 penalty. I wound up going to the bank and pitching a fit," he said. "The people most subject to [overdraft fees] can least afford to pay the penalty."Other banks may be facing a potential loss in fee revenue, but two Long Island bankers interviewed Monday said they did not offer overdraft coverage.

Tom O'Brien, president of State Bank of Long Island, said if a customer attempts to overdraw an account, the transaction is rejected. "We don't like to make money capitalizing on someone's mistakes," he said.

Bridgehampton National Bank also said it has not offered the coverage. "We never let someone overdraw $3 and get hit with $35 in fees on top of it," said James Manseau, senior vice president and chief retail banking officer at Bridgehampton.

The new rule:

REQUIRES banks to provide the same terms, including prices, for consumers who decline overdraft protection.

DENIES consumers cash at ATMs or has their debit-card transactions rejected - thus preventing an overdraft - if they decline to join a program.

DOESN'T APPLY to printed checks or regularly recurring debits from checking accounts.

APPLIES to online transactions.

- Bloomberg News