Fed: banks need customer consent on overdraft fees

WASHINGTON (AP) — The Federal Reserve has issued a new rule that will prohibit banks from charging overdraft fees on ATM and debit card transactions unless a customer allows it.

Many banks allow consumers to spend more on debit cards than they have in their accounts, but then charge overdraft fees of $25 to $35, even on small transactions that cost much less.

The Fed's rule, which will take effect July 1, requires that customers agree to have their overdrafts covered before the fees can be levied. Otherwise, purchases for more than a customer has in an account will be denied.

The rule comes after growing criticism of the high overdraft fees from consumer groups, other regulators and members of Congress.