Fed Won't Regulate Bounce Protection

Credit Union Journal, The, June, 2004

The Federal Reserve said last week it won't issue new rules to regulate overdraft, or "bounce" protection, despite calls to do so by consumer groups. These kinds of programs, which are becoming increasingly popular among credit unions, allow consumers with low balances to overdraw their accounts in exchange for fees that consumer groups claim amount to high-cost loans.

After studying the issue for a year, the Fed said it will not apply the Truth-In-Lending laws to such programs, which would have required broad disclosures on fees. Consumer groups charge the programs, generally used by low- and moderate-income consumers, amount to high-charge loans because a fee of $15 to $35 for a two-week overdraft of $100 is often equal to an annual interest rate of as much as 500%. Some...

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