Obama’s Financial Overhaul and Overdrafts

On Wednesday, President Obama release an 84 page document that goes over the aspects of his proposed “overhaul” of the financial system.  On page 66 of this report he mentions future plans for overdraft protection.

“One example is overdraft protection plans.  These are a form of consumer credit, and consumers often use them as substitutes for other forms of credit such as payday loans, credit card cash advances, and traditional overdraft lines of credit.  However, overdraft protection plans have not been regulated as credit, and as a result, consumers may not overtly think of the plans as credit.  Consumers may not, therefore, take the same care in their use of overdrafts that they take with other, more overt credit products.  The CFPA would be authorized by existing statutes to regulate overdraft protection more like a credit product, with Truth in Lending disclosures as appropriate.  The CFPA could also prohibit charging for overdraft coverage under a plan unless the consumer has “opted in” to the plan, just as the Credit CARD Act prohibits over-the-limit fees unless the consumer as “opted in” to over-the-limit coverage.  It could also require affirmative consent at point of sale with debit transactions or at an ATM machine before collecting an ‘overdraft fee’.”

This basically translates into the same push for regulation that I’ve discussed in this blog post.  Regulation would require the customer to “opt in” to the overdraft program, rather than being automatically signed up like customers are currently.  The overdraft programs would also be required to alert you at the ATM and POS (point of sale) when you are going to overdraft your account.

Off the bat, these all sound like excellent ideas and complete improvements to the current system.  These changes, however, could have unforeseen consequences which you can read about in my Lesser of Evils post.