Turns out that we don't need financial services reform from Congress. The Fed is going to screw up the system all on its own. Thursday, the Fed announced that banks aren't going to be allowed to charge overdraft fees anymore when the withdraw comes from an ATM or one-time debit card purchase. From the Fed statement:
The Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. [...]
"The final overdraft rules represent an important step forward in consumer protection," said Federal Reserve Chairman Ben S. Bernanke. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."
This announcement is pretty much what we could expect from a Consumer Financial Protection Agency. It pretty much reflects the kind of short-term thinking that is sure to come from an agency infused with politics. Restricting banks from charging overdraft fees not only restricts a source of revenue, it removes a layer of responsibility from consumers.
Why should the bank be blamed for charging a fee if you loan money from them against their will? In a separate scenario, what stops consumers from taking out large sums of money in the morning, over drafting their account, using that money as a short-term loan—maybe for running a business, gambling, paying a separate debt until a paycheck clears, etc—and then paying back the money the next day? Payday lending companies are sure to be crushed by this.
For more, I wrote about personal responsibility and overdrafts back in August.