FDIC chief wants overdraft fees restricted

ByABC News
September 27, 2009, 8:15 PM

— -- Even as some banks pull back their policies, the head of the Federal Deposit Insurance Corp. is calling for tight restrictions on fees charged for overdrawn checking accounts.

In the past week, some of the nation's largest banks have announced plans to change the way they assess overdraft fees.

The moves are "significant improvements, but do they go far enough?" FDIC Chair Sheila Bair said in an interview with USA TODAY on Friday. "That's an open question. We do need some regulatory standards in this area. We need the Fed to finalize rulemaking in this area."

The Federal Reserve has said it plans to release a rule by the end of the year on overdrafts. But it's unclear whether, and to what extent, it will require banks to curtail overdraft practices.

Richard Bove, an analyst at Rochdale Securities, warns that "putting any type of limitation on overdraft fees will just result in some consumers being kicked out" of the system if banks find that they can no longer make money off them.

Other analysts say that onerous restrictions could also make it harder for the troubled industry to recover. Overdraft fee income has been a huge source of profits for banks. In 2009, banks are expected to reap a record $38.5 billion from overdraft fees, nearly twice the $20.5 billion they stand to collect from credit card penalties such as late and over-limit fees, according to research firms Moebs Services and R.K. Hammer.

Banks are hoping changes to their overdraft policies will stave off further regulation. Chase has said that by early next year, it will stop approving debit-card overdrafts, and charging a fee, unless consumers have consented to the service. Wells Fargo, meanwhile, plans to limit the number of times consumers can get hit with overdraft fees each day, to four from 10.

"The changes the industry has made, and will make, will address customers' concerns," says Scott Talbott, a senior vice president at the Financial Services Roundtable.