Service with a wicked grin

20 November 2009 By Robert Cyran Follow @rob_cyran

U.S. bank regulators and politicians are forcing banks to rein in this big source of profits. Consumers should be pleased but not excited. Financial institutions are likely to find other ways to charge customers or lend less. UK customers will have to live with the status quo.

This content is for Subscribers only

Context News

The US Federal Reserve on November 12 announced limits on banks' ability to charge fees on overdrafts arising from ATM use and debit card transactions. Customers will now have to give consent. The rules come into force on July 1, 2010 for new customers and August 15, 2010 for existing ones. The overdraft rules do not affect cheques or recurring payments.

Bills have been introduced in the US Congress by Representative Carolyn Maloney and Senator Christopher Dodd that curb fees more aggressively. Both limit overdraft charges to one per month and six per year. They also require fees to be proportional to the amount of the overdraft and prevent banks from debiting most expensive purchases first so as to increase fees.

Finally, some banks have announced changes to overdraft policies. JPMorgan announced last month it would not charge a fee if the account was less than $5 overdrawn. Similarly, Bank of America announced fees would only occur when accounts were more than $10 overdrawn.

The UK's Office of Fair Trading announced in March 2007 that it would formally investigate the fairness of unauthorised overdraft fees under the Unfair Terms in Consumer Contracts Regulations 1999. The UK's leading banks appealed, arguing that the unfairness rules did not apply. The High Court and the Court of Appeal upheld the OFT's position.

The Supreme Court ruled in favour of a further appeal bought by the UK banks on November 25. The court unanimously held that the charges for unauthorised overdrafts were part of the price paid by the customer for the banking services provided.

Email a friend

Please complete the form below.

Required fields *