What You Should Know About the Debit Card in Your Wallet: Where the Federal Reserve’s New Overdraft Rules May Fall Short

Abstract:     
Bank debit cards may look like credit cards, but they certainly do not act like them when it comes to account overdrafts. This does not suggest that credit cards are better than debit cards, as complaints abound concerning the transparency of fees charged to consumers for credit card transactions as well. Nevertheless, consumers are more familiar with the workings of credit cards, often not realizing that credit and debit overdraft charges work differently. This essay supports the opt-in regulatory mechanism for overdraft fees of the general type adopted by the Federal Reserve in its Final Rules, particularly because the multi-tiered approach adopted recognizes that consumers may desire to have overdraft protection on some items, such as paper checks, but may not desire the same protection for ATM and POS transactions.

Number of Pages in PDF File: 9

Keywords: debit, cards, payments, overdrafts, federal reserve, rulemaking, credit, tila, efta, consumers, transparency, banks, banking, fees

JEL Classification: K1, K10, K12, K19, K2, K20, K23, K29, K3, K30

Accepted Paper Series