Since the start of the banking crisis the government has taken a much more active role in protecting consumers and small businesses from potentially predatory lending programs. The creation of the Consumer Financial Protection Agency (CFPA) continues to be in the works, and in the meantime a number of individual announcements are being released. A recent development came out last Thursday by the Federal Reserve and includes a ban on overdraft fees for consumers that make withdrawals at automated teller machines (ATM) or via debit cards. The ban will exist unless customers specifically opt in to overdraft protection in their accounts.
A recent Wall Street Journal article relayed that the Fed estimates overdraft charges garner $25 billion to $38 billion annually in fees for financial institutions. The final details of the current overdraft ban will vary by individual banks that must fully disclose their respective overdraft programs to consumers. This will include having the account holder explicitly agree to be charged for the ability to overdraw their accounts. The main issue being brought by politicians is that an account holder can be charged $30 or more for simply overdrawing an accounts by a few dollars and that the fee can be charged multiple times in a short period of time if a consumer fails to bring the account balance back to positive territory or doesn’t realize it has fallen below zero due to insufficient funds.
This recent announcement affects consumers and small businesses alike. Of course, the best way to avoid these fees is to monitor your account and make sure it doesn’t dip into negative territory. Banks also generally offer small businesses lines of credit with reasonable interest rates if they need to borrow to bridge any gaps in the timing between cash outlays and receipts. A current line of credit at Capital One lists the interest rate at a slight spread over the Wall Street Journal prime rate, which was currently quoted at 3.25%.
The debate over whether banks are charging exorbitant or unnecessary fees will remain heated as in many instances it allows the account holder to complete a transaction, as opposed to have it denied over a few dollars. Overall, instead of having to wait on government intervention, reading the fine print in bank and other agreements will help minimize the risk that high fees adversely affect you or your personal business.