Federal regulators are proposing new guidelines for the overdraft protection plans commonly offered by banks.
The guidelines would discourage excessive fees, something consumer advocates say are increasingly common when consumers overdraw their accounts by writing too many checks or failing to keep track of ATM and debit-card transactions.
The Federal Reserve and other bank regulators said many banks encourage their customers to use the overdraft protection by portraying it as a sort of short-term loan, rather than as a last-ditch protection against overdrawing their account.
"Although the service is designed to protect consumers against occasional inadvertent overdrafts, some institutions' promotional materials make the service appear to be a line of credit, apparently to promote a consumer's repeated use of the credit," the Fed said.
The proposed rules would make it clear to banks that they cannot mislead customers about overdraft protection fees in their advertising and would tell them they cannot describe overdraft protection as a line of credit.
Also, banks would not be allowed to describe an account as "free" or "no cost" if it included an overdraft protection feature that charged a fee or assessed interest. Also, banks that advertised bounced check protection would have to mention the fees for the service in the ads.
The regulators said some banks appear to have set up marketing programs that encourage customers to overdraw their accounts, without warning them of the fees and interest that may result.
Some consumer advocates said the proposal does not go far enough. It would not, for example, subject the credit extended to overdrawn consumers to federal lending laws.
The regulatory proposal was issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration.
After a 60-day comment period, the proposed rule may be finalized.
