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Thursday, November 12th, 2009

Federal Reserve Sets Limits for Debit Card Fees

Debit card users will have to opt-in to overdraft fees for ATM withdrawals and one-time purchases, according to a new set of ruled unveiled by the Federal Reserve Board.

The measures, which will take effect July 1, 2010, are part of a series of decision issued by the nation's central bank to limit abusive practices by banks announced over the past year.

Authorizing Fees

Under the new rules, all debit card holders must be given notice of the bank's policies, including those on overdraft fees, in plain language. Cardholders can sign up to be charged fees or not, and banks cannot change the terms of service afterward.

Banks will still be allowed to charge overdraft fees for recurring debt card purchases, such as recurring utility bills that are automatically charged, as well as on bounced checks.

The measure is mainly aimed at one-time debit card purchases or ATM withdrawals that can often result in fees greater than the purchase amount.

Bank account dwindling? It may be time to consider filing bankruptcy.

Protecting Consumers

"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke in a press release. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Declining Transactions?

Of course, those who overdraw their bank accounts won't be given free money by their banks.

Overdraft protection allows banking customers to make payments even when their funds are limited, and are charged a fee for the convenience.

Those who opt-out of overdraft protection may instead see their transactions declined if they attempt debit card purchases when their accounts are low. However, any overdraft transactions approved by the bank cannot result in fees.

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Posted in Finance 101: Secure Your Future, Predatory Lending | 1 Comment »

Saturday, October 10th, 2009

Long Live the Gift Card?

When gift cards turned plastic, they seemed like the perfect present – convenient, easy to keep track of, and flexible for the recipient. But some gift cards – especially those issued by credit card companies – have been charging fees for card value unused after a certain point.

American Express: No More Dormancy Fees

Whether or not the move is part of a reaction to government attacks of credit and debit card fees is not clear, but American Express has announced that it will no longer charge monthly fees for gift cards that go unused.

On its website, AmEx announces that the elimination of monthly fees began September 30 and applies to all gift cards – those in stores, online and already in people’s wallets. Taken alone, this is good news. But American Express’s move may not cause others in the industry to follow.

  • Visa cards are more widely accepted among retailers, which means that they may not feel motivated to adopt a similar no-dormancy fee policy.
  • Chase cards come with a monthly fee of $2.50 beginning a year after the card is issued. The company hasn’t made any announcements about fee changes.
  • American Express cards still cost between $2.95 and $6.95 to purchase and activate.

Struggling with credit card debt? It may be time to consider bankruptcy as an option.

Credit Card Reforms and Gift Cards

The recently passed Credit CARD Act, which will bring various credit card reforms early next year, also has some provisions that will regulate gift cards. These include:

  • Dormancy fee limits: Inactivity for at least one year is required before card issuers can charge dormancy fees to a card.
  • Fees on packaging: Issuers must “clearly and conspicuously” identify all activation and other fees on the packaging of the card.
  • Bans on early expiration dates: Gift cards will be prevented from expiring within five years of their issue.

Take Home Lesson: Proceed with Caution

If you’re interested in giving gift cards to your loved ones, consider getting store-specific cards, which generally don’t have activation fees or dormancy fees. Further, you can rest assured knowing it will be accepted at the outlet you have in mind.

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Posted in Finance 101: Secure Your Future | 2 Comments »

Friday, October 2nd, 2009

Bank of America Trims Overdraft Fees

In late September, Bank of America announced in a press release that it has modified its policy for charging what it calls overdraft fees, but what some critics classify as abusive overdraft loans.

In some cases, "overdraft fees" and other credit card fees and practices cause some people to file bankruptcy.

What are Abusive Overdraft Loans?

In the era of debit card usage, it’s far too easy to spend more money than we have. And most banks allow customers to make transactions even if they don’t have sufficient funds in their accounts – but each such transaction results in a fee.

The so-called fee is, essentially, a super-short term loan: the bank covers your purchase and you repay the amount plus $25 – $35. This may not sound like much, but if you make several over-limit purchases in a day, it can add up.

Bank of America’s New Policy

Earlier this year, BoA introduced fee increases, but apparently changed their plans in light of the negative publicity credit cards have received recently (Credit Cardholders’ Bill of Rights, anyone?).

Here’s a summary of what the new BoA policies will look like beginning October 19th:

  • For overdrafts totaling less than $10 in a single day, Bank of America will not charge any overdraft fee, as long as the account is settled within five days. (A $35 fee will be levied if the account remains unbalanced after that period.)
  • The bank will set a limit of four overdraft charges in a single day. (This is a change from the policies introduced earlier, which raised the cap to ten.)
  • BoA will also modify the opt-out process so consumers can choose not to have “overdraft protection” on their accounts. For the time being, you may have to go to a physical bank location to do this, though the bank is reportedly setting up a phone service.
  • BoA will outline fees and charges in what it calls “Clarity Commitment” – apparently this will provide a plain-language explanation of their overdraft system.

Protecting Yourself from Abusive Overdraft Loans

If you aren’t sure whether or not your bank offers overdraft protection, be sure to find out. In most cases, opting out of such programs is a good idea. By eliminating the service, you will likely be denied when you try to make a purchase or withdrawal from your account when you have insufficient funds.

For most consumers, the temporary embarrassment is a better bargain than the permanent fees.

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Posted in Your Credit Score | No Comments »