Along with Chairman of the Houston Financial Services Committee Barney Frank, I’ve introduced the Overdraft Protection Act, H.R. 3904.
Financial institutions have increasingly used overdraft “protection” plans in a way that is deceptive and unfair to consumers. The problem is significant. The FDIC reports that the vast majority of large banks enroll consumers automatically in overdraft plans, charge an average of $28 per overdraft, and most structure the posting of debits in a way that maximizes overdraft fees to the bank.
In the new report, the Center for Responsible Lending estimates that banks and credit unions raked in nearly $24 billion in overdraft income in 2008, a jump of 35 percent from two years earlier. And when individual overdraft fees are calculated in the form of an interest rate, the annualized rate exceeds 3,500 percent. As the New York Times Editorial Page puts it, That's usury, no matter you cut it, and it should be disallowed under federal law,
The Overdraft Protection Act will help protect consumers by:
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Bringing overdraft plans under the purview of the Truth in Lending Act, to require financial institutions to get the permission of consumers before enrolling them in any overdraft program;
- Capping the number of overdraft fees banks can charge at one per month and six per year;
- Requiring notification if a transaction at an ATM would trigger an overdraft fee and offer the chance to cancel the transaction before a fee is incurred;
- Requiring that overdraft fees relate to the actual cost of processing the overdraft, as defined by bank regulators; and
- Stopping the practice of re-ordering transactions posted to accounts in a way that maximizes fee income to the bank.
I have introduced overdraft protection legislation in each Congress since 2005. This new legislation differs from those earlier bills and more closely resembles legislation introduced in the Senate by Sen. Christopher Dodd (D-CT), S. 1799
This approach reduces the impact on retailers whose point-of-sale terminals may not be equipped to notify debit cardholders of a potential overdraft fee. By capping overdraft fees at the financial institution itself, rather than at the point of sale, we maximize protections to consumers and minimize the impact on retailers during the current recession. The bill calls for the GAO to study the feasibility of providing notice about point-of-sale and restates the Fed’s existing authority to regulate on point-of-sale after the results are issued.
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