Banks will have to get their customers’ consent before charging large overdraft fees on ATM and debit card transactions according to a new rule that will be effective July 1, 2010.

The Federal Reserve announced the new rule in response to complaints from consumer groups, members of Congress and other regulators who argued that the present overdraft fees are unfair because many people assume they can’t spend more on a debit card than is available in their bank account.

However, most banks allow the transactions to go through then charge overdraft fees of up to $35.00 per transaction.

For small debit card purchases such as a cup of coffee, the penalty astronomically exceeds the actual cost of the purchase transaction.

Banks earn as much as $25 to $38 billion annually from overdraft fees according to Fed officials.

Under the Fed’s new rule, banks will be required to notify new and existing customers of their overdraft services and give customers the option of being covered. If customers don’t “opt in,” any debit or ATM transaction that overdraws their account will be denied.

The new rule does not apply to checks and regularly scheduled electronic bill payments as most consumers want those items to be covered in the event of an overdraft, Fed officials said.

Source: Tulsa World