Consumer Alert: New Overdraft Rules for Debit and ATM Cards Taking Effect

NEW YORK, NY (08/12/2010)(readMedia)-- The New York State Consumer Protection Board (CPB) is alerting consumers to new options that are available regarding overdrafts charges for transactions made with debit and ATM cards.

Many banks have automatically provided overdraft coverage to consumers who make ATM withdrawals or one-time debit card transactions that cause their accounts to be overdrawn. However, such coverage often incurs a fee of $35 or more. As a result, Americans paid an estimated $38 billion in overdraft fees in 2009.

New Federal Reserve rules prohibit financial institutions from charging consumers fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or "opts in," to the overdraft service for those types of transactions.

"The new overdraft rules offer important new protections for debit and ATM card users," said Governor David A. Paterson. "Consumers can now make an informed decision about whether to sign up for overdraft coverage."

Before opting in, the consumer must be provided a notice that explains the financial institution's overdraft services, including the fees associated with the service, and the consumer's choices. If a consumer does not opt in for overdraft service, everyday debit card and ATM transactions will be declined if there are insufficient funds in the account. However, no overdraft fee will be charged.

The new rules do not apply to checks or automatic bill payments that consumers set up to pay bills such as mortgage, rent, or utilities. Banks may still automatically enroll consumers in overdraft coverage for these types of transactions.

The rules applied to new accounts as of July 1, 2010 and will take effect for existing accounts on August 15, 2010.

"Consumers who elect not to have overdraft protection may have other, cheaper options," said Mindy A. Bockstein, the CPB's Chairperson and Executive Director. "Some banks offer customers a line of credit or a link to their savings account to cover transactions which overdraw an account. Banks typically charge a fee each time an account is overdrawn, but these overdraft protection plans are generally less expensive than standard overdraft practices."

The CPB urges consumers to carefully read the notices from financial institutions about their new overdraft policies. Further information about the new debit and ATM card rules is available online from the Federal Reserve at www.federalreserve.gov/consumerinfo/wyntk_overdraft.htm.

Consumers can also access debit, banking and credit-related information on the CPB's website at www.nysconsumer.gov.

The CPB, established in 1970 by the New York State Legislature, is marking its 40th anniversary as the State's top consumer watchdog and think tank. The CPB's core mission is to protect New Yorkers by publicizing unscrupulous and questionable business practices and product recalls; conducting investigations and hearings; enforcing the Do Not Call law; researching issues; developing legislation; creating consumer education programs and materials; responding to individual marketplace complaints by securing voluntary agreements; and, representing the interests of consumers before the Public Service Commission and other State and federal agencies.

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To file a consumer complaint with the NYS Consumer Protection Board (CPB), call our toll-free hotline at 1-800-697-1220 or visit the CPB's website at www.nysconsumer.gov. In addition to the online complaint form, the website is home to important consumer safety information and resource.