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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Winter 2009/2010

New Federal Rules Highlight Overdraft Costs, Limit Fees

If you write a check or use your ATM or debit card when you don't have enough funds in your account, your bank may cover the transaction — but typically for a sizeable fee. Now here's good news. Changes in federal regulations will require institutions to more clearly inform consumers about the costs of overdraft services.

"An overdraft should be an infrequent or occasional event, but many of today's automated overdraft programs make it possible to incur several in a single day and rack up related fees quickly," said Luke Brown, the FDIC's Associate Director for policy involving bank compliance with consumer regulations. "The new regulations are a step toward helping consumers understand the costs of overdraft programs and assisting them with making more informed choices about the best product for covering occasional overdrafts."

Under the first new rule from the Federal Reserve Board, effective January 1, 2010, all financial institutions must clearly tell consumers on their periodic statements how much they have been charged in overdraft fees during the statement period and for the calendar year to date. This rule can help people monitor how the fees they have paid add up. It also can serve as an incentive to prevent overdrafts.

In addition, when an institution provides a consumer with account balance information through an automated system — including an ATM, Web site or telephone — it must provide the actual balance, without additional amounts that could be used to cover overdrafts. However, an institution may disclose a second balance that does include overdraft coverage, but only if the additional amount is clearly labeled (for example, by stating that the balance includes "overdraft funds").

"We hope these changes will help consumers understand how much money they actually have in their accounts, and that extra costs are associated with withdrawing more than that amount," added Sam Frumkin, an FDIC Senior Policy Analyst.

And, under another new rule from the Federal Reserve Board, beginning on July 1, 2010, financial institutions will be prohibited from charging fees for overdrafts on ATM withdrawals and one-time debit card transactions at "point of sale" (POS) terminals in stores unless the individual agrees up front ("opts in") to pay those fees. First, though, consumers must have been provided a notice explaining the institution's overdraft payment services, including the relevant fees. This information will help consumers weigh the pros and cons of various options before deciding whether or not to enroll. You can also change your mind and opt out even after you sign up.

That same rule also will prohibit financial institutions from discriminating against consumers who don't opt in for overdraft services for ATM and POS transactions by offering them accounts with less attractive terms, features and pricing.

FDIC officials also encourage consumers to become knowledgeable about alternatives to high-cost overdraft programs.

"Consumers would benefit from information about all of the overdraft payment services or products offered by their bank, including comparative details about fees and costs," explained Mira Marshall, an FDIC Section Chief specializing in consumer issues. "Available alternatives to high-cost products could include linking a checking account to a savings account, obtaining an overdraft line of credit, and getting a small-dollar loan that may be less expensive than an overdraft program."

If you're concerned about running short on funds in your account, ask your bank ahead of time about options that may be less expensive than an overdraft program.

And regardless of whether you enroll in an overdraft program, Luke W. Reynolds, Chief of the FDIC's Community Outreach Section offered this advice: "Keep track of your account balance and make sure you have enough money in your account to cover transactions, so you avoid costly fees and embarrassment by spending more money than you have available."

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Last Updated 3/12/2010