Federal scrutiny growing on bank overdraft charges

Bair or an FDIC representative were not immediately available for comment yesterday.

Overdraft programs typically penalize customers with a fee of about $25 or $35 for making purchases when there isn’t enough money in their accounts.

Consumers are generally automatically enrolled in the programs, and can’t opt out. Critics say the programs are misleading because most people assume they can’t spend more than they have when using debit cards.

Last week, Bank of America, JPMorgan Chase, US Bank, and Wells Fargo announced plans to start requiring customers to opt into the programs.

Even with the bigger banks backing off automatic enrollment, however, federal regulations could force smaller and community banks to follow suit, said Linda Sherry, a spokeswoman for Consumer Action, an advocacy group in Washington, D.C.

“There’s so much money in this for even the small banks, I can’t see them backing off it without a fight,’’ she said.

Scott Talbott, a spokesman for the Financial Services Roundtable, an industry group, said competition will eventually drive smaller banks to follow the lead of the larger banks. Given the changes announced last week, he said, any regulations would be redundant.

“The industry has already made a number of changes. The regulations are no longer needed,’’ Talbott said.

Meanwhile, the Federal Reserve plans to issue a final rule on the matter by the end of the year.

The central bank has proposed two approaches for dealing with overdraft programs. The first would bar a bank from assessing fees on a customer’s account unless notice and an opportunity to opt out of the bank’s overdraft protection service was provided in advance. Under the second proposal, a bank would have to secure the customer’s consent, or require them to opt in, before overdraft fees could be imposed.

Neither Fed option would put a limit on the fees charged. The law the Fed is tapping to try to crack down on overdraft abuses doesn’t give the agency authority to cap or limit the fees. It’s unclear whether the Fed could do so under other powers.