The Federal Reserve announced it will issue a rule within a month that would require banks to obtain consumers’ consent before signing them up for overdraft programs under which banks charge exorbitant finance charges when they process check or debit-card transactions that exceed a customer’s balance. 

As we’ve reported, banks are expected to collect more than $30 billion in such fees this year. Public outcry over these overdraft programs has grown, as has Congressional pressure to curb what National Consumer Law Center Staff Attorney Chi Chi Wu labels “one of the most expensive and exploitative credit products on the market.”  

While several of the nation’s largest banks have recently announced changes in their overdraft programs that make them slightly more consumer-friendly, the changes are unlikely to significantly reduce costs to customers, according to a recent report from the Consumer Federation of America.

The report provides details of overdraft programs at 16 banks throughout the U.S. and calculates what a $100 overdraft would cost if it remains unpaid for seven days, computing the finance charges as an annual percentage rate, akin to a payday loan. The APR for such an overdraft actually exceeds 3,000 percent at six banks: Bank of America, BB&T, Citizens, Fifth Third, Sun Trust and U.S. Bank.

To truly address the problem, Congressional action is needed, argues Travis Plunkett, legislative director at the Consumer Federation of America. “The Consumer Financial Protection Agency, under consideration this month by the House Financial Services Committee, is needed to restore consumer protections to bank overdraft lending,” says Plunkett. 

Not surprisingly, the banking industry is lobbying against creating this agency that would be dedicated to putting consumers’ interests first.–Andrea Rock