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The Federal Reserve Board announced that beginning in the summer of 2010 consumers will not be liable for overdraft fees on checking accounts, ATM withdrawals and debit card transactions unless they specifically opt-in to the overdraft protection program offered by their financial institution.

Overdraft fees have become a very lucrative business for U.S. banks. It is estimated that they will rake in an astounding $38 billion on overdraft fees alone in 2009. As it stands now, the majority of banks automatically enroll their customers in their respective overdraft protection programs whether they request it or not.

While the banks will say that it is a service that they offer for their customers to protect them, many of these very same consumers and consumer advocate groups have vehemently argued otherwise.

A great many of the fees would have been prevented if but a simple warning were given that the consumer was in fact short on funds to cover their transaction.

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Paying off overdraft fees can have a significant impact on more than one consumer’s budget, which is why members of Congress are taking a closer look at them.

This week, the House Financial Services Committee held a hearing on the overdraft fees, which can exceed $30 in some cases when a consumer uses more money than is available on a debit card.

Some consumer advocates have raised the scenario of consumers being charged such amounts simply for buying a cup of coffee, also pointing out that the fees tend to apply for each transaction. With that in mind, a person who uses their debit card multiple times in a day without knowing they have an insufficient balance could end up on the hook for a couple hundred dollars in fees.

Defenders of the current system maintain that it’s up to consumers to keep track of how much money they have in their account, and that the fees are a reasonable alternative to having a card declined at the cash register. Read more…