How Your $4 Coffee Can Cost You $39 or More if You Use Your Debit Card! Federal Level Consumer Protection and Modern Payments Transactions
18 Pages Posted: 18 Mar 2009
Date Written: March 17, 2009
In early 2009, the Federal Reserve Board, along with the Office of Thrift Supervision (OTS) and the National Credit Union Administration (NCUA) (the "Agencies") proposed new rules primarily targeted to ATM and debit card transactions "intended to ensure that consumers have clear and timely information about their account balances, so that they can properly manage their accounts and avoid unexpected overdraft charges" (Proposed Overdraft Rules). This Article advocates the adoption of an opt-in regulatory mechanism for depositary account overdraft fees of the general type proposed by the Agencies, but cautions against proposals that do not provide adequate disclosure to consumers or that result in the imposition of overdraft fees even where consumers have elected not to have overdraft protection for ATM and POS transactions. This Article also advocates elimination of banking practices that place consumers into overdraft fee systems by default, or which increase the amount of fees, such as holds for purchases like gasoline and restaurants and reordering daily transactions to subtract the highest-dollar amounts first.
This Article further argues that the Treasury's Blueprint's failure to address specific consumer protection deficiencies (such as debit cards) is not a signal that they are unimportant to regulation of the financial industry. As payment systems continue to change and the products offered by depositary institutions expand, in fact, the issues associated with developing payment systems may require more frequent attention. This Article concludes that successful regulation of the financial system on a longer term necessitates a reworking of our current regulatory framework beyond the slow-moving split-authority structure currently prevailing. While the specific approach to future financial regulation is subject to debate, the concentration of responsibility for consumer issues under one Business Conduct Regulator would mark a progressive change to our experience. We should not hesitate to abandon a regulatory framework that no long continues to adequately respond to market innovations and consumer needs.
Keywords: debit, cards, payments, Federal Reserve, OTS, NCUA, POS, ATM, rulemaking, overdraft, account, banking, deposit, regulations, blueprint, consumer, protection, business, conduct
JEL Classification: K1, K10, K12, K19, K2, K20, K23, K29, K3, K30
Suggested Citation: Suggested Citation