MinnEcon: November 16, 2009 Archive

What will consumers do with new overdraft options?

Posted at 8:00 AM on November 16, 2009 by Paul Tosto (0 Comments)
Filed under: Saving & spending

The Federal Reserve's move to make it harder for banks to to charge ATM, debit card overdraft fees has been widely applauded by consumer groups. Even the American Bankers Association didn't really balk.

But the Fed decision's got me wondering how it will really play out.

Starting in July, financial institutions won't be able to automatically enroll people in ATM or debt-card overdrafts services. Consumers will have to opt in to the service, one where banks often charge $10, $20 or more for ATM or debit-card overdrafts (check overdrafts aren't part of the new rule).

So instead of being automatically enrolled, you get information and if you don't opt in to the service you can't be charged overdraft fees on ATM and one-time debit card transactions.

Sounds good. The downside, of course, is that the bank will simply deny the transaction, potentially leaving you without cash when you need it.

Marshall MacKay, chief executive of the Independent Community Bankers of Minnesota, also notes that processing costs tied to the overdrafts will still need to be covered.

So in effect the new ruling implies that any expense incurred by processing those exception items should be paid not by the person who incurs the expense (overdraft), but by all the customers including the vast majority who do not use the service.

There is not a business around that does not ultimately pass it's expenses on to its customers. so it seems very unfair to the majority of bank customers to pay for the poor record keeping of a few.

Overdrafts are a multi-billion dollar money maker for banks. The FDIC in a report last year found automated overdraft usage fees assessed by banks ranged from $10 to $38.

Consumers Union and other groups say there are cheaper options for bank customers, including linked accounts, where money can be moved from savings to checking to cover an overdraft.

But, practically, what will consumers do? Will they seek out the cheaper alternatives? Will they keep the costly overdraft protection on ATM and debit-card transactions? Or will they just roll the dice?

Contact me directly and let me know what you'd do. What's your experience with overdraft services? What better options are there (besides not overdrawing your account)? What does your bank charge?

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Click on the map icons below to read what sources in MPR's Public Insight Network have been telling us about their spending and saving in this economy. Share your story.

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Fed targets gift card fees, expiration dates

Posted at 9:18 PM on November 16, 2009 by Paul Tosto (0 Comments)
Filed under: Saving & spending

What's with the Federal Reserve? It's going all consumer protection on us lately.

Last week they laid down new protections on some overdraft fees. On Monday, they proposed rules restricting fees and expiration dates on gift cards. The plan would stop many "non-use" and service fees on the cards.

Companies could charge fees on a card inactive for a year or more (if the conditions were made clear to consumers upfront) but couldn't charge more than one fee per month. Expiration dates would have to be set at least five years after the card was issued.

Gift cards have become the present this decade because they're convenient, easy to buy and send -- and we're able to avoid that really awkward moment of disappointment when people get you something you hate!

In its 2009 holiday shopping survey, the consulting firm Deloitte LLP found:

Gift cards hold their first-place position for the sixth year in a row, with 64 percent of consumers planning to buy them as presents. While the number of gift cards they plan to purchase remains nearly flat (5.4 from 5.3 last year), consumers' planned spending per card is $35, which is up from $28 last year and nearly back to the pre-recession average of $36 in 2007.

Minnesota in 2007 stopped businesses from selling a gift card carrying an expiration date or a service fee of any kind, including for "non-use."

By the way, the Fed was directed by Congress to take action on gift card charges as part of the Credit Card Accountability Responsibility and Disclosure Act of 2009.

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Will you spend the $35 per card average Deloitte's predicting? What kind of spending plans do you have for the holiday season? Click here and share your story.

Click on the map icons below to read what sources in MPR's Public Insight Network have been telling us about their spending and saving in this economy. Share your story.

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