Nov. 12 (Bloomberg) -- The Federal Reserve will prohibit banks from charging overdraft fees on automated teller machines or debit cards, unless a customer has agreed to pay extra charges for exceeding account balances.

Financial companies will have to explain overdraft programs and fees, as well as choices available to consumers, the Fed said today in a statement announcing a rule that takes effect next year. Lenders collected almost $37 billion in overdraft fees last year, according to research firm Moebs Services Inc.

“The final overdraft rules represent an important step forward in consumer protection,” Federal Reserve Chairman Ben S. Bernanke said in the statement. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”

House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd have separately introduced legislation that would restrict banks’ ability to charge overdraft fees. Both bills would permit one overdraft fee a month or six in a year.

Giving consumers a choice is important, “but we need to do far more to protect customers from abusive bank products,” Dodd said today in a statement. “We still need to stop the excessive fees, repeated charges, lax notifications and processing manipulation” in overdraft-protection programs.

Dodd introduced legislation Nov. 10 to strip the Fed of authority for regulating banks and give Congress a greater voice in naming the central bank officials who set interest rates. Dodd’s plan would create a Consumer Financial Protection Agency, which would assume the Fed’s role on consumer issues.

‘Consistency, Clarity’

The Fed’s overdraft rule will “bring consistency and clarity” for banks, said Edward Yingling, president of the Washington-based American Bankers Association. “We will work hard to balance enhanced consumer protections while retaining the benefits of processing important payment such as utilities, rent and mortgage payments.”

The final Fed rules will require banks to provide the same terms, including prices, for consumers who decline overdraft protection. The rules take effect July 1. Consumers who decline to join a program may be denied access to cash at an ATM or have their debit-card transactions rejected, the Fed said.

Fed consumer research shows “most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit- card transactions unless they affirmatively consent,” the board said in its statement.

Checks Excluded

The rules won’t apply to printed checks or regularly recurring debits from checking accounts, a Federal Reserve official said in a background briefing conference call today. Those transactions will be handled differently because people want those payments, which might include rent or utilities, to go through without delay, the Fed official said.

For online transactions, those using a debit-card number would be covered under the rules, the Fed officials said. Payments using a checking account number wouldn’t be covered, the officials said.

The rules may fail to produce the desired result of avoiding costs for customers, because consumer protection steps often have unintended consequences, said Bob Meara, senior analyst with Celent, a Boston-based financial research and consulting firm.

“The majority of account holders who don’t overdraft their accounts will be paying monthly service fees rather than the free checking enjoyed for the last decade,” Meara said.

Banks, credit unions and savings-and-loans must comply with the rules. They will have to design disclosure statements to make the programs easier to understand, the officials said. Fed research showed that many consumers weren’t aware their accounts automatically enrolled them in overdraft programs, subjecting them to fees, they said.

Fees related to overdrawn U.S. accounts may rise to $38.5 billion this year from $36.7 billion in 2008, according to Moebs Services in Lake Bluff, Illinois.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net.

Last Updated: November 12, 2009 17:16 EST