The New Overdraft and Debit Laws Explained

According to reports, in the year 2006 overdraft fees accounted for approximately 6% of banking revenue in this country. Fortunately, on August 15^th a handful of new laws went into affect to protect consumers in this country from excessive banking fees. However, in addition to targeting overdraft fees and debit cards, the new rules also have a significant impact on gift card practices in this country. To help all of my readers understand the full affect of the new laws, I have put together the following article explaining the most important new overdraft and gift card rules.

I. Overdraft Protection Laws

What is overdraft protection?

Before the new law was passed, banks could automatically enroll customers in overdraft protection, which would allow you to charge more than you had in your checking account. Instead of declining the transaction, the bank would approve it, and then charge you with a $20-40 overdraft fee.

Opt in or out

Starting August 15th, banks were forced to discontinue overdraft protection services unless customers sign up for it. This means you can decide whether or not you want your card to get approved when you have insufficient funds.

Disclosure mailers

As part of the new laws, financial institutions have been required to notify customers of how overdraft protection will affect their bank account. This is because of new disclosure laws that aim to increase consumer transparency in the banking industry, and also explains why you have probably received extra mail from your bank over the past few weeks.

Checks and bills

According to the new law, banks can still charge overdraft fees for checks or automatic withdrawals from your account that are higher than your available balance. The overdraft fee rules only apply to ATM debit and check card transactions. You bank may have an option to turn off all overdraft options, but you should ask your financial institution for more information.

Alternative overdraft protection

There are other ways to protect yourself from having your debit card declined than enrolling in overdraft protection. If your bank offers online banking then you could make a habit of checking your balance every day to make sure you do not overspend. Some financial institutions also offer cell phone alerts when your balance is low.

II. Gift Card Laws

Fees

Until now, the gift card industry has gone relatively unregulated. However, the new overdraft and debit laws also have implications on gift cards. As of August 15^th, companies that issue gift cards cannot charge excessive fees that lower the card’s available balance. The new law limits the number of fees that can be charged to a one-time fee when the card is purchased, and only one additional charge per month. Additionally, inactivity fees cannot be charged at all unless the card has not been used for over a year.

Expiration

The new law states that gift cards cannot expire for at least five years. Prior to this new rule, some gift cards would expire in as little as a year.

Disclosure

Much like the new bank laws, companies who offer gift cards must now disclose fees and expiration dates to customers. For gift cards, the disclosure must be on the card itself, along with a toll-free number or website to find more information if need be.

Prepaid debit and phone cards

Unfortunately the new gift card laws do not apply to prepaid debit cards or prepaid phone cards; the rules only apply to gift cards.

Credit Card Companies Like Making Money! (DUH!)

Most of the much hyped credit card legislation went in to effect today, and the Huffington Post has put together a summary of all the new changes consumers should be aware of. Although many of these changes are beneficial to most Americans, credit companies will always find ways to get more money from their customers, so it is important to understand these new regulations. I have included a section of their article below, but be sure to checkout the full text at Huffington Post.com.

As of today, February 22nd, all credit card companies must do the following:

Keep all due dates the same on your credit card: Now you can better plan for your credit card payments each month without fear of being late because they have arbitrarily changed the grace period.

Provide you 45 days notice before they raise rates: While there are no limits as to how high the rates can go and they can still jack up your interest rates, at least you now have much more time to prepare for these rate increases.

Younger adults under the age of 21 will find it much harder to obtain a credit card: I used to have a portion of my workshop for college freshmen that cautioned them against credit card companies that solicited their business... that practice will severely be limited because of this age restriction.

No more double cycle billing: Card companies used to be able to charge interest on a debt that had already been paid in a previous month. As wrong as this practice was it was legal... not anymore.

Watch for Sneaky New Bank Charges

When the new credit and overdraft laws take into effect, many banks are expecting to lose revenue. Therefore, it should come as to surprise that many are already looking for ways to make up for the loss. In place of sneaky overdraft fees, several banks are looking to create new fees on checking accounts, and additional banking options for additional revenue.

MSN Money posted an interesting article alerting consumers of these changes. Reportedly, banks will begin bombarding customers with these new fees throughout 2010 in preparation for the new law that will take affect in July.

For some customers, that could mean the end of free checking accounts.

“Banks, just like airlines and local governments, need to fill the revenue gap,” Greg McBride, the senior analyst for Bankrate.com, told Smart Money last year. “They’re looking to fee increases to do that.”

A 2008 study by the Federal Deposit Insurance Corporation reported that 75% of checking account holders paid nothing for the service. The other 25% paid minimum balance fees, overdraft fees and other service charges -- subsidizing free checking for everyone else, Consumer Affairs reported.

With banks’ ability to levy some of those charges restricted, expect banks to raise the threshold for free checking, increasing the number of customers who pay something, Consumer Affairs predicts.

Continue reading at MSN Money.com…

Tightening the Bankruptcy Laws in the Midst of a Deep Recession

From Creditslips.com:

Beginning on November 1, some people might suddenly find they are now ineligible for chapter 7 bankruptcy. Making it harder to file bankruptcy in the middle of our financial crisis may not be the best policy idea to come down the pike, but it is exactly what Congress set in motion in 2005. Here is why.

The U.S. bankruptcy law has a means test that is meant to filter "can pay" debtors into chapter 13. It's a test that was not needed--there was no evidence of widespread abuse of the bankruptcy system--and the test is not having its intended effect--the income distribution of filers has not changed. The means test begins with an inquiry that asks whether a debtor is above or below the state median income for a household of the same size in the debtor's state.

The state median income figures are periodically updated by the U.S. Census and the Executive Office for U.S. Trustees (EOUST) publishes a table that is used in the bankruptcy courts. Don't blame either the Census or the EOUST for this one. They are just doing what Congress directed. These changes happen automatically.

With the recession, incomes are going down. Thus, in half of the data points on the table, the median income that will subject a debtor to the means test has decreased. In Illinois, for example, right now a filer from a 1-person household goes through the means test if he or she has median income above $47,355. On November 1, that will change to $46,105.

California Laws Get Tough on Mortgage Finance

California Governor Arnold Schwarzenegger signed seven new mortgage finance bills in to law on Monday, most of which crack down on fraud and set new requirements and restrictions for mortgage and reverse mortgage originators. Yesterday Housingwire.com posted an in depth article describing each bill and their intended purposes. Check out their list below.

Senate Bill (SB) 36 regulates the licensing requirements for residential loan originators in compliance with the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act.

SB 237 requires appraisal management companies (AMCs) and appraisers register with the Office of Real Estate Appraisers and subjects appraisers to the provisions of the Real Estate Appraisers’ Licensing and Certification Law.

SB 239 raises the crime of mortgage fraud from a misdemeanor to a felony and makes it easier for prosecutors to obtain fraudulent loan documents to investigate cases.

Assembly Bill (AB) 260 places restrictions on subprime loans and prohibits originators from “steering” borrowers, or encouraging borrowers to buy riskier loan products when they are eligible for affordable products. It also gives state regulatory agencies the authority to suspend or revoke the licenses of real estate lenders and mortgage brokers that violate the state’s lending laws.

AB 329 sets guidelines for reverse mortgages originated for elderly borrowers — those over 65 years old — requiring specific disclosures and offering counseling service referrals. Originators are also prohibited from selling other financial products to a reverse mortgage borrower.

AB 957 gives the buyers of foreclosed property the right to choose local escrow officers to complete transactions. It prohibits the seller of a residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller.

AB 1160 requires originators to provide borrowers with a mortgage summary document translated in the language the contract was verbally negotiated.