The Need for Card Reform

Last Thursday, the Federal Reserve approved a host of new regulations intended to eliminate the unfair practice of unannounced debit and ATM card overcharge fees. This decision, slated to take effect next summer, is a long overdue measure that will undoubtedly protect customers—many of whom are college students—who would be otherwise unaware of fine-print loan policies.

The status quo represented a certain exploitation of which many card customers were unaware. Customers were often charged lofty fees they would certainly not have agreed to if they understood them.

Under the Fed’s new regulations, companies must now make debit-card policies—especially fees—explicitly clear through frequent notices to customers, without whose permission overdraft charges can no longer be issued. While these notices have yet to circulate, they are thankfully required to be lucid, clear, and forthcoming with the full extent of policies regarding fees. We hope that these new measures will have their desired effect and reduce the exploitation so common under previous card-company policies.

The new system requires banks to clearly explain overdraft charges to their consumers, and it also requires permission to offer the service in the first place. Requiring permission will make the customer a more active participant in the process of acquiring and, yes, understanding the use of a debit card—an essential step in liberating huge numbers of Americans from the confusion that has all too often translated into customer abuse.

But perhaps the best thing about the Fed’s new mandate is that it increases choice for consumers, not to mention ensuring that customers will actually want the supposed “services” they will receive from their card companies. A better understanding of the nuances and implications of each respective card policy will create a more financially-literate pool of customers much more aware of the decisions they make and the impact of those decisions. In that sense, while the Fed has at once protected customers nationwide from continued abuse, it has also done much to educate these customers about their financial health and well-being, an essential step in cultivating the kind of citizens upon which this administration relies.

Above all else, bringing transparency to financial products appears to be a high priority for the current administration, and this is an important step in the right direction. We appreciate the Fed’s committment to both protect and educate customers.